Verbal Evidence
Cases
Howden v. Ulster Bank and Others.
[1924] 1 IR 117
Wilson J. Ch. Div. (N. I.)
I do not doubt or impugn the settled rule of evidence, that parol evidence is not admissible to add to, vary, or contradict a written agreement or any transaction in writing: Meres v.Ansell (1); but in this case I have come to the conclusion that the letters are not a written agreement and do not contain or purport to contain the whole transaction, and in allowing the evidence I follow the law laid down in Roscoe’s Nisi Prius Evidence, 18th ed., p. 17; and Allen v. Pink (2), which decided that parol evidence of a verbal transaction is not excluded by the fact that a writing was made concerning or relating to it unless such writing was in fact the transaction itself and not merely a note or memorandum of it or portion of the transaction; and the judgment therein of Lord Abinger C.B., concurred in by Bolland and Alderson BB.: “The general principle is quite true that if there has been a parol agreement, which is afterwards reduced by the parties into writing, that writing alone must be looked to to ascertain the terms of the contract; but the principle does not apply here; there was no evidence of any agreement by the plaintiff that the whole contract should be reduced into writing by the defendant; the contract is first concluded by parol and afterwards the paper is drawn up, which appears to have been meant merely as a memorandum of the transaction or an informal receipt for the money, not as containing the terms of the contract itself.”The case of Lockett v. Nicklin (3) comes nearest in its facts to the present of any of those I have read, and throws some doubt on the case of Ford v. Yates (4), relied on by Mr. Murphy for the defendants. In that case the defendant by letter ordered certain goods from the plaintiffs, and the letter stated,”if approved, as I told Mr. Lockett, I will give you further orders.” The goods were sent with an invoice in the nature of a sold note showing parties, goods, and price, and stating nothing as to the time of payment. Similar orders were subsequently given and similarly dealt with; and plaintiffs then brought their action for the price, and the defendant tendered evidence to prove that there had been a conversation between the parties prior to the order for the goods, at which, inter alia, it was stated that defendant was to get six months’ credit and pay them by a bill at three months, and that it was on these terms that the order for the goods was given. The evidence
was objected to and admitted, and a verdict found for defendant, leave being reserved to the plaintiffs to move to enter a verdict for them. At the trial Patterson J. admitted the evidence, not for the purpose of varying the contract, but of supplying the omission in the written documents as to the time of payment. The motion was argued before Barons Parke, Alderson, and Platt. I refer to all the judgments in that case, and the admission of the evidence and the verdict for the defendants were upheld, and the rule for a new trial was discharged. Again in Hutton v. Warren (1) Baron Parke says that the principle on which extensive evidence is admissible to annex incidents to written contracts is a presumption that the parties did not mean to express in writing the whole of the contract by which they intended to be bound. In Angell v. Duke (2)Blackburne J. says: “It is a most important rule of law that people should not add to or vary a written contract, which is the record of all the terms relating to the same matter agreed upon between the parties.”
It is because it was alleged that the letters in this case on their face were not intended to be the record of all the terms agreed on between the parties that I admitted the parol evidence. If I was wrong in admitting this evidence, the judgment I delivered should be set aside, as the parol evidence materially affected my decision. It was proved to my satisfaction that the plaintiffs and the Company both knew of the quotations of the firm across the water for the building of dredgers, and that there was a full discussion about them, and a rough specification for the boat was produced at the meeting to which I have referred of the four persons on the morning of 14th August, 1919. Mr. Harbinson, on behalf of the plaintiffs, gave the Company the order for building this dredger. Brown, on behalf of the Company, ordered M’Intyre to make up full specification. Then M’Intyre asked what about payments, and Brown said: she would be built on the usual shipbuilding agreement. Harbinson, for plaintiffs, was satisfied with that, and knew, or thought he knew, what it meant. The company’s representatives shook hands with Mr. Harbinson, representing plaintiffs, and thanked him for the order. Mr. Harbinson then retired, and the letters were written as already mentioned.
Macklin v. Graecen & Co.
[1983] IR 61 S.C.
Griffin J
When (as in this case) a transaction has been reduced to writing by agreement of the parties, no evidence may be given to prove the terms of the transaction except the document itself, and extrinsic evidence is not admissible to vary the terms of the document. I agree with the learned trial judge that, in an appropriate case, an agreement made by the holder of a licence for its extinguishment is enforceable; indeed, such agreements are frequently made. Such an agreement would be more elaborate in form and would (inter alia) recite such matters as the agreement of the parties, that the licensee holds the licence, that the licence is subsisting and will be kept in force, the intended application to the court for a new licence, the description of the premises to which it is attached, and the agreement to consent to the extinguishment of the licence. But this is not such a case. Here, the plaintiffs’ claim is, and remains, one for specific performance of an agreement to sell the licence. It is not and cannot be treated as a claim seeking rectification of the document, in which case parol evidence would be admissible in support of such a claim.
Therefore, the plaintiffs’ claim must be confined to the terms of the agreement and, unquestionably, those terms make the agreement one for the sale of the licence. For almost 100 years it has been accepted that a licence to sell intoxicating liquor is inalienable and must be attached to premises. The law on the matter has been stated succinctly in O’Connor’s Irish Justice of the Peace (2nd ed. vol. 2 at p. 688) as follows: “The doctor cannot sell his degree, because it is attached to himself; on the other hand, the holder of a licence cannot sell the licence to any other person, unless such other person also buys the premises. The licence per se is inalienable. It must always, so long as it exists at all, remain attached to premises (see observations of Barry, L.J. in Brennan v. Dorney 5 at p. 368).”
AIB Mortgage Bank -v- Hayes & anor
[2016] IEHC 280
Baker J
22. The parol evidence rule has been long considered as a rule observed as much by reason of its exceptions than as arising from observance of the rule itself. I adopt the reasoning of Hogan J. in Tennants Building Products Ltd. v. O’Connell [2013] IEHC 197 where, at para. 19, he explained the parol evidence rule as:
“By virtue of this rule, the parties to a written contract are presumed to have reduced the entirety of their agreement to writing and that to permit one party to introduce new oral evidence which in effect contradicts the terms of the written agreement would be destructive of legal certainty.”
23. Hogan J. explained the parol evidence rule as meaning inter alia that the Court will not hear evidence as to what one party subjectively believes the contract meant, and quoted the Supreme Court judgment in Macklin v. Graecen & Co. Ltd. [1983] I.R. 61 as authority for that proposition. As Hogan J. correctly said, the parol evidence rule has been “consistently diluted” by various doctrines including misrepresentation and the recognition that collateral contracts may exist side-by-side with a main contract found in a written document.
24. In Analog Devices B.V. & Ors. v. Zurich Insurance Co. & Anor. [2005] 1 IR 274 at p. 281, Geoghegan J. identified the rule as the third proposition stated by Lord Hoffmann in I.C.S Ltd v. West Bromwich Building Society & Anor. [1998] 1 WLR 896 as follows:
“The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.”
25. That statement of principle is relied on by counsel for the plaintiff. It is, in my view, not a precise statement of the parol evidence rule, in that the rule relates to circumstances where the parties commit their contract to writing, and where the evidence shows that the contract was intended to be found in that written document. The third principle of Lord Hoffmann is rather a more general proposition relating to the law of contract, i.e. that the court will look to find the meaning of a contract in the terms actually agreed, and whether they be written or in other form is irrelevant to that proposition, and evidence of intention or what was said or discussed in negotiations is not evidence which is admissible as evidence either to vary the contract or to explain what it means. This arises from the first principles of contract law that a contract evolves from the unequivocal and complete acceptance of an offer, and in complex contractual negotiations it is the final terms offered and accepted which form the basis of the contract, and not terms varied in the course of negotiations. The court will not look to the negotiations to ascertain why the parties reached a particular position, as the focus of the court in interpreting contractual obligations is on what was agreed, not on why it was agreed or what was varied in the course of negotiations and why.
26. In Bula Ltd. v. Tara Mines Ltd. [1999] IESC 17 the Supreme Court quoted with approval the dicta of Lord Wilberforce in Reardon Smith Line Ltd. v. Yngvar Hansen-Tangen [1976] 1 W.L.R. 989 at pp. 995-6 as follows:
“No contracts are made in a vacuum: there is always a setting in which they have to be placed. The nature of what is legitimate to have regard to is usually described as ‘the surrounding circumstances’ but this phrase is imprecise: it can be illustrated but hardly defined. In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating…”
27. In that case, the Supreme Court said that while the general rule is that evidence is not admissible to vary the terms of a contract which has been reduced to writing, the rule was subject, inter alia to a qualification that oral evidence may be received as to the “factual matrix”. It is the evidence of the negotiations and subjective intentions that is not admissible.
28. Counsel for the Bank also relies on two judgments of McGovern J., Ulster Bank Ireland Ltd. v. Deane [2012] IEHC 248 and Allied Irish Banks Plc. v. Taylor & Anor. [2016] IEHC 121. In the first of these cases, the Court refused to permit the defendants to defend summary proceedings when they sought to advance evidence which contradicted the terms of a written facility letter which the bank asserted contained the agreement between the parties. McGovern J. rejected that evidence as inadmissible as being an impermissible breach of the parol evidence rule, and in reliance on Macklin v. Graecen & Co. Ltd. and O’Neill v. Ryan & Ors. [1992] 1 I.R. 166 he described the rule as:
“In short, a party is not permitted to adduce evidence which, in effect, contradicts the reasonable construction of words used in a written agreement.”
29. McGovern J. followed his own judgment in the later case of Allied Irish Banks Plc. v. Taylor.
30. In each of these cases McGovern J. predicated his decision on a view, not seriously contested, that the parties intended the written document to comprise the contract, i.e. he explained the test as being that extraneous evidence could not contradict or defeat a contract which was reduced to writing. Implicit in that approach is that the parties intend that the written document be the sole repository of the contract. Those judgments of Mc Govern J. do not deal with circumstances where the contract is found in other documents or exchanges.
31. The parol evidence rule does not exclude the argument that express assurances can have contractual force, or can sound in the law of tort as a misrepresentation. In that regard Hogan J. in Tennants Building Products Ltd. v. O’Connell adopted the analysis of Finlay Geoghegan J. in Allied Irish Banks Plc. v. Galvin Developments (Killarney) Limited & Ors. [2011] IEHC 314 which was also referred to extensively by counsel for both parties in the present case, and to which I now turn.
32. I find most useful for the purposes of the analysis of the factual circumstances in the present case the authoritative analysis contained in the judgment of Finlay Geoghegan J. in Allied Irish Banks Plc. v. Galvin Developments (Killarney) Limited & Ors. The bank in that case argued that the contract was to be found in the suite of written documents. While she did not analyse the matter by reference to the parol evidence rule, Finlay Geoghegan J. did find that there existed a collateral contract by which the bank agreed to limit its right of recourse to 50% of the loan advanced. She used the term “collateral contract” with some hesitation and pointed out that it was not intended to denote a contract existing side by side with the main contract, but rather a contract preliminary to the main contract, arising from a promise made in the context of the main contract and but for which the main contract would not have been made.
33. I consider the analysis of Hogan J. of the relationship between the pure parol evidence rule as explained by McGovern J. in Ulster Bank Ireland Ltd. v. Deane, and the finding of a collateral contract as was done by Finlay Geoghegan J. in Allied Irish Banks Plc. v. Galvin Developments (Killarney) Limited & Ors., to point to the power of the court to recognise the existence of a collateral or preliminary contract arising from a promise intended to have contractual effect made in the course of negotiations. The written contract may not always contain the whole of the evidence of the terms on which the parties have contracted, albeit this may arise in exceptional cases and only where the evidence is clear. As Hogan J. said in Tennants Building Products Ltd. v. O’Connell, the finding of such a collateral contract is not the norm, and will require cogent evidence, often found in pre-contract documents.
34. The defendants argue that the loan sanction letter of the 14th April, 2005 and the emails were not intended by either party to be devoid of legal effect or purpose. It is argued that in the case of negotiations between commercial entities the court should assume there existed an intention to create legal relations. Reliance is placed on the decision of Megaw J. in Edwards v. Skyways Ltd [1964] 1 W.L.R. 349. That case involved a negotiation between representatives of the British Airline Pilots Association and the airline company regarding pension rights of pilots who were made redundant. The company contended that the representation made by it in the course of negotiations was not intended to give rise to legal relations, and the High Court of England and Wales disagreed. Megaw J. found that the promise and agreement made by the airline was made in the context of a business relationship and not in a domestic or social context, and accordingly, the onus would be on the party denying that legal relations were intended to show that there was no intention to create legal relations. I accept that proposition and consider this to follow form the analysis of Finlay Geoghegan J. in Allied Irish Banks Plc. v. Galvin Developments (Killarney) Limited & Ors. and Hogan J. in Tennants Building Products Ltd. v. O’Connell.
35. The leading recent Irish case which deals with whether a representation has become a term of a contract is the considered judgment of Gilligan J. in Carey v. Independent Newspapers (Ireland) Ltd [2004] 3 I.R 52. In that case the plaintiff joined the staff of one of the newspapers operated by the defendant as a political correspondent. She had discussed her working arrangements with the editor before taking the position, and had made it clear that for personal reasons, she would not be in a position to work the early morning shift. The editor discussed the plaintiff’s working requirements with a member of senior management, who expressed serious reservations about the possibility that the plaintiff could work from home for the early morning shift, as was proposed. The editor was advised by the senior manager that if the editor did support the plaintiff’s proposal, that he too would support it, but that he would not confirm the arrangement in writing as he felt the newspaper might wish to review the working arrangements at a later date. The plaintiff was not advised of these reservations.
36. When the editor was subsequently replaced, the plaintiff was required to work the early morning shift and brought proceedings in the High Court claiming damages for breach of contract and/or damages for misrepresentation. The legal proposition relevant to the present case was that the representations made by the editor to the plaintiff had contractual force. Gilligan J. reviewed the law relating to when a statement and representation made in pre-contractual negotiations could be said to form part of a concluded contract. He pointed to the fact that the text books often distinguished between representations which did not become terms of a contract, and those which did, sometimes described as “warranties”, this term meaning “a term having contractual effect” and denoting a contractual term.
37. Gilligan J. made the point, which I accept, that a pre-contract representation may become a term of a contract even if it is not called or characterised as a warranty in the negotiations or conversations in which the representation was made. I also accept the general proposition stated by Gilligan J., that the significance of the term to the “eventual entry into the contract on the part of either or other of the parties” is a relevant factor in determining whether a representation has contractual effect. In that case, Gilligan J. found that the agreement with regard to morning working was a fundamental term of the agreement reached between the defendant and the plaintiff, and “constituted a warranty and inducement” to the plaintiff to take the position offered.
….
Conflict between formal written documents and prior assurances
41. How then is one to reconcile the fact that Mr. and Mrs. Hayes both signed a formal loan offer document which did not contain a reference to a review after five years?
42. Mr. and Mrs. Hayes engaged with their solicitor for the purposes of witnessing the document, and Mr. Hayes spoke highly of her, a partner in the firm of McCarthy and McCarthy, Ballincollig, Co. Cork, with whom Mr. and Mrs. Hayes had dealt in regards to all or most of their financial and personal property deals. I regard it as significant in that context that when Mr. and Mrs. Hayes came to sign the loan offer in the presence of their solicitor, they did not discuss with her that the loan offer did not mention a review after five years. Mr. Hayes gave evidence that he phoned Mr. Dudley before he signed the document. He was unable to remember whether he phoned Mr. Dudley from the Ballincollig office of his solicitor, or from an office in Cork. That this phone call occurred was never put to Mr. Dudley in cross-examination. What exactly was said in the course of conversation was also not identified by Mr. Hayes. He never mentioned the phone call to his solicitor, and I heard no evidence at all from Mrs. Hayes in the course of the case. Mr. Hayes says that he brought the difference to Mr. Dudley’s attention before he signed the loan offer, but that he was told a further five years interest free would be granted as a matter of “a rubber stamp”, and that the final loan documentation took the form it did to suit the “paperwork”, in the context where Mr. Hayes knew and was expressly told that the Bank did not have a ten year product. That the five year offer issued in order to suit the paperwork requirement of the bank was put to Mr. Dudley, and his reply was that he had never issued a ten year loan offer, that such a product was not available, and that he never had, nor would he have, issued a loan offer to a customer and then told them that the terms were different from those expressed in writing.
43. I accept Mr. Dudley’s evidence in this regard, and reject that of Mr. Hayes. Mr. Hayes said he was happy to sign the document on the 2nd June, 2005, because of his conversation with Mr. Dudley on that day. I do not accept that this conversation happened, and if it did, I do not accept the evidence of Mr. Hayes that he was assured by Mr. Dudley that in essence, the document that he was signing did not mean what it said. Mr. Hayes is a very experienced businessman, and I found him to be a very intelligent witness. He had built a very substantial property portfolio, he is a qualified engineer and has been engaged in business for a long number of years, and must have in the course of his business dealings executed very many documents. He took the trouble of executing the loan offer in the presence of his solicitor, a solicitor with whom he had a lot of dealings over a long number of years. Almost two months had passed from the date of the letter from Mr. Dudley on the 14th April, 2005 and the formal loan offer acceptance. Mr. Hayes knew he was a valued customer of the Bank and he could have reverted to Mr. Dudley or to another person in the Bank, or had his solicitor revert, to have the formal loan document revised to reflect what he said was agreed. I regard it as not credible, that Mr Hayes would not have mentioned the phone conversation and the assurance said to have been given to him by Mr Dudley because he had such trust in his solicitor and her expertise.
44. However, I cannot ignore the fact that the agreement that the Bank would meet the costs of breaking the fixed rate loans was also not reflected in the loan document, and that agreement was performed and agreed to have been a term of the loan.
45. Counsel for the defendants argues that the expression “all things being equal there wouldn’t be any issue in extending at that stage for a further five years”, must have been, was intended to, and did in fact have contractual import. In my view this is correct and the Bank did intend to give a degree of comfort or assurance to Mr. Hayes in the negotiation, that should he accept the loan offer, the interest only facility would be favourably reviewed after the five years, and that it was anticipated that the interest only period would be continued for another five years.
46. It is in the circumstances my view that the formal loan document was not intended to comprise all of the elements of the agreement for loan. Two elements at least were omitted from the written document, although both found clear expression in other written documents adduced in evidence, primarily the letter of the 14th April, 2005. I am satisfied that there was an agreement between the parties, that the Bank would meet the cost of breaking the fixed interest loans, and note that was a complex agreement by which Mr. Hayes met half of the cost in the first year and was reimbursed those monies the following year subject to certain conditions which were met. I am also satisfied that there was an agreement that the facility would be reviewed after five years and that there was to be no automatic reverting to annuity at that stage. This is borne out also by the internal Bank documents in 2007 and 2009. I accept the evidence of Mr. Dudley that it would have been unusual, if indeed impossible, for Bank headquarters to have issued a mortgage loan offer that made express reference to a review after five years. Mr. Hayes, in the course of his evidence, suggested that Mr. Dudley had said to him that the Bank “paperwork” would not normally include a reference to a review, and I accept that that is so.
47. In the circumstances the matter can be dealt with by means of the analysis conducted by Finlay Geoghegan J. in Allied Irish Banks Plc. v. Galvin Developments (Killarney) Limited & Ors., i.e. that there is sufficient written evidence of a collateral agreement between the parties and that the evidence points me to a conclusion that the formal offer of mortgage loan dated the 5th May, 2005, did not contain the entire of the agreement between the parties
48. Thus it seems to me that counsel for the Bank is incorrect in arguing that this case may be answered by application of the parol evidence rule, as that rule has no application when the parties do not commit the entire of their agreement to writing.
Conclusion on contractual force of assurances
49. Accordingly, the contract between the Bank and Mr. and Mrs. Hayes did provide for a review of the facility after five years, with regard to whether Mr. and Mrs. Hayes should be offered a further period during which repayments would be on an interest only basis. I consider that this was a term of the contract, or that it operates as a preliminary contract.
50. Mr Hayes however asserts that the agreement with the Bank was that the interest only facility would automatically be renewed at the five-year review and that it was a matter of a “rubber stamp”. I turn now to consider this argument as: [2016] IEHC 280
Maloney v O’Connor & anor
[2015] IEHC 678
Barrett J
PART 8: COLLATERAL CONTRACTS
ii. Nature and effect of collateral contracts
30. Sometimes it may be difficult to treat a statement made in the course of negotiations for a contract as a term of the contract, either because the statement was (a) clearly prior to or outside the contract, or (b) because the so-called parol evidence ‘rule’ prevents its inclusion. When it comes to the issue of collateral contracts, the court was referred, inter alia, to the decision of the House of Lords in Heilbut Symons & Co. v.Buckleton [1913] AC 30, and to the following observation of Lord Moulton therein, at 47:
“Such collateral contracts, the sole effect of which is to vary or add to the terms of the written contract, are therefore viewed with suspicion by the law….Not only the terms of such contracts but the existence of an animus contrahendi on the part of all the parties to them must be strictly shown.”
31. Presumably the reason counsel referred to such a vintage case was to persuade the court that the quoted text represents a long-standing and settled point of law from which the court should be slow to depart. But the problem with citing a more-than-one-century-old case is that a lot of legal water has passed under the jurisprudential bridge in the hundred years or so since.Indeed, much that was stated in Heilbut Symons has now become entirely out of date, as was noted by no less an authority than Lord Denningalmost 40 years ago in J Evans & Son (Portsmouth) Ltd. v. Andrea Merzario Ltd. [1976] 1 W.L.R. 1078, 1081. Evans went un-cited in the within proceedings -Mr O’Connor, as a so-called ‘lay respondent’, could hardly be expected to cite it – so the court does not tarry to consider it in any detail. However, one hardly needs to have regard to Lord Denning’s eminent wisdom before recognising as a truth that the courts are nowadays much more willing than they were before the Great War to accept that a pre-contractual assurance gives rise to a collateral contract. In truth, it is now trite law to state that when a person gives a promise or an assurance to another, intending that she should act on it by entering into a contract, and she does act on it by entering into the contract, that promise or assurance is held to be binding.
32. As a general rule, breach of a collateral contract gives rise to an action for damages for its breach. However, it does not seem to the court that experience, law or logic offer any reason why, as a matter of principle, it should not be possible for the court to treat a main contract as repudiated by virtue of the non-observation or contravention of a collateral contract. Just because one form of remedy is typical does not have its necessary consequence that another form of remedy is unavailable. Other effects of a collateral contract may be to vary the terms of the main contract or – notably, in the context of the within proceedings – to estop a party from acting inconsistently with it where it would be inequitable for him to do so. The court returns to these last possibilities later below.
PART 9: THE PAROL EVIDENCE ‘RULE’
33. The court was referred by counsel for Mr Maloney to the parol evidence ‘rule’, a supposed ‘rule of law’ which19th-century judges, in particular, seem to have applied with an almost peculiar relish. Under the most rigorous version of that ‘rule’,parol testimony cannot be received to contradict, vary, add to, or subtract from the terms of a written contract, or the terms in which the parties have deliberately agreed to record any part of their contract. Operation of the parol evidence ‘rule’ was never confined to oral evidence. Thus, it has also been taken to exclude extrinsic matter in writing. However, the ‘rule’ has the potential to be so crushingly unfair in its result that it has long been subject to what Murphy J. describes in Cotter v. Minister for Agriculture (Unreported, High Court, 15th November, 1991), as “numerous exceptions”. In fact these last-mentioned exceptions are so numerous as to suggest that in truth the ‘rule’ has continuously presented with difficulties in its conception, construct, and how it is carried through in practice. So much so, that it can no longer be asserted as a truth that the mere production of a written agreement, however complete it may seem to be, will, by ‘rule of law’, render inadmissible evidence of other terms that do not appear in, or are not expressly incorporated into, that agreement.
34. A court is entitled in every case to look, and as a matter of natural justice must look, at all the evidence from start to finish to see what the bargain was that was struck between the parties. That is what this Court has done in the within proceedings. Here, counsel for Mr Maloney contends that the evidence points to the existence of a main contract (re. the sale of land) and a collateral contract(re. the stamp duty benefit). The court, by contrast, finds that, consistent with Mr O’Connor’s contentions and the contract of 9th April, 2003, the consideration for the sale of the above-mentioned lands, as agreed before the ‘closing’, was ‘Cash Price + Split Benefit’, that absent this combined consideration there would have been no sale of the land, and that what presents therefore is not two contracts (one main, one collateral),but one contract where the consideration due is split into two elements.
Irish Bank Resolution Corporation Ltd -v- McCaughey
[2014] IEHC 230
Kelly J
Collateral Contract
18. Collateral contracts are dealt with by Chitty at para. 12.103 as follows:-
“Even though the parties intended to express the whole of the agreement in a particular document, extrinsic evidence will nevertheless be admitted to prove a contract or warranty, collateral to that agreement. The reason is that ‘the parol agreement neither alters nor adds to the written one, but is an independent agreement’.
Such evidence is certainly admissible in respect of a matter on which the written contract is silent. In a number of older cases it was stated that evidence of such a contract or warranty must not contradict the express terms of the written contract. However, more recently the courts have admitted evidence to prove an overriding oral warranty or to prove an oral promise that the written contract will not be enforced in accordance with its terms. Thus, in City Westminster Properties (1934) Limited v. Mudd, the draft of a new lease presented to a tenant contained a covenant that he would use the premises for business purposes only and not a sleeping quarters. The tenant objected to this covenant and the landlords gave him an oral assurance that if he signed the lease, they would not enforce it against him. The tenant signed the lease, but later the landlord sought to forfeit the lease for breach of this covenant. Harman J. held that the oral assurance constituted a separate collateral contract from which the landlords would not be permitted to resile. The collateral contract or warranty may be formal or informal even though the main contract is one which is required by law to be in or evidenced by writing.”
19. In Tennants Building Products Limited v. O’Connell [2013] IEHC 197, Hogan J. neatly summarised the modern case law on this topic as follows:-
“The effect of this case-law may be said to be that while the courts will permit a party to set up a collateral contract to vary the terms of a written contract, this can only be done by means of cogent evidence, often itself involving (as in Mudd and in Galvin) written pre-contractual documents which, it can be shown, were intended to induce the other party into entering the contract. By contrast, generalised assertions regarding verbal assurances given in the course of the contractual negotiations will often fall foul of the parol evidence rule for all the reasons offered by McGovern J. in Deane.”
20. Reference was also made to the decision of Finlay Geoghegan J. in AIB Plc v. Galvin [2011] IEHC 314 where she said:-
“I am using ‘collateral contract’ in the sense explained by Cooke J., in the Supreme Court of New Zealand in Industrial Steel Plant Ltd. v. Smith [1980] 1 N.Z.L.R. 545, at p. 555, quoting with approval from Cheshire and Fifoot on Contracts:
‘The name is not, perhaps, altogether fortunate. The word ‘collateral’ suggests something that stands side by side with the main contract, springing out of it and fortifying it. But, as will be seen from the examples that follow, the purpose of the device usually is to enforce a promise given prior to the main contract and but for which this main contract would not have been made. It is rather a preliminary than a collateral contract. But it would be pedantic to quarrel with the name if the invention itself is salutary and successful.’
It is clear that not every statement or promise made in the course of negotiations for a contract may give rise to a finding that a collateral contract exists. To be so treated, a statement must be intended to have contractual effect.”
21. All of these cases were, of course, decided on full oral hearings and not on applications for summary judgment.
22. It is clear that the courts have over the years on occasions accepted that in appropriate circumstances the terms of a written agreement may be affected by the existence of a collateral contract or warranty made between the parties. That is the case which is sought to be made here. Counsel for the plaintiff in reply sought to analyse very thoroughly the precise wording of the affidavit evidence from Mr. McCaughey and Mr. Drennan on this topic so as to demonstrate that it falls short of the “cogent evidence size=”2″ face=”Verdana”>” referred to by Hogan J. and could better be characterised as general assertion. He also sought to raise the ability of Mr. Drennan to bind the Bank. Whilst ultimately these criticisms may well prove to be correct, it does not appear to me that I can, at this juncture, say that it is very clear that the defendant has not demonstrated a triable issue in respect of this allegation of collateral contract. There is his own sworn testimony, bolstered by Mr. Drennan’s and fortified by the material which was presented to the credit committee which material antedates the signing of the formal contracts in each case.
23. Given the low threshold of proof that is required to be established at this stage of the proceedings, I am of opinion that a triable issue has been raised as to the possible existence of a collateral agreement to the effect that the term of the agreements would be “for the duration of the funds”.
24. This line of argument could have been entirely precluded by the plaintiff by having in its contractual terms an “entire agreement” clause. These clauses have been commonplace for years and provide that the written agreement contains the entire and only agreement between the parties and supersedes all previous agreements and understandings respecting the subject matter of the contract. Furthermore, such clauses commonly contain an acknowledgement that when entering into the agreement, the borrower has not relied on any representation or undertaking whether oral or in writing save such as are expressly incorporated into the written document. Had such an “entire agreement” clause been incorporated into the conditions of the plaintiff, this line of argument would not have been available at all to the defendant.
25. Having concluded that a triable issue as to existence of a collateral contract which provided that the term would be for the duration of the funds thus not making the monies advanced repayable on demand, I now consider the consequences of that conclusion.
26. This collateral contract on the terms contended for by the defendant has its limitations. First, he accepts in his affidavit that it only applies to the first agreement, second agreement, third agreement, facility A and facility B and part of the fourth agreement. It has no relevance in relation to other parts of the claim.
Burley v Joseph W Burley Partners Ltd & Anor
[2002] EWCA
Rix LJ
For the purposes of the parol evidence rule he was content to rely, as his sole authority, on the statement of the Law Commission in its report on the Law of Contract, the Parol Evidence Rule, Law Com 154 of January 1986, Cmd 9700. Paragraph 2.7 of that report, which is the essence of Mr Newman’s case, reads as follows:
“We have now concluded that although a proposition of law can be stated which can be described as the `parol evidence rule’ it is not a rule of law which, correctly applied, could lead to evidence being unjustly excluded. Rather, it is a proposition of law which is no more than a circular statement: when it is proved or admitted that the parties to a contract intended that all the express terms of their agreement should be as recorded in a particular document or documents, evidence will be inadmissible (because irrelevant) if it is tendered only for the purpose of adding to, varying, subtracting from or contradicting the express terms of that contract. We have considerable doubts whether such a proposition should properly be characterized as a `rule’ at all, but several leading textbook writers and judges have referred to it as a `rule’ and we are content to adopt their terminology for the purposes of this report.”
I will refer also to paragraphs 2.14 and 2.19 of the report on which Mr Newman also relied:
“The issue whether parties intended that the whole of their agreement should be as recorded in a particular document or documents is to be judged objectively. The court is not concerned with whether both parties, in their minds, intended the writing to contain the whole of the agreement between them but whether, having regard to what was said or done, and to what documents were signed and exchanged, and when, a reasonable person would have understood the writing to contain the whole of the agreement. A party is not permitted to give evidence of his private but uncommunicated intention as to what was to be agreed, or as to what the written agreement was to mean.”
Paragraph 2.19:
“So far, we have discussed only the situation in which it is proved or admitted that the whole of the parties’ contract is intended to be as recorded in a particular document. However, similar principles will apply where only a part of the contract is so recorded. In that situation, once it is proved or admitted that the parties intended the document to be conclusive as to the matters mentioned in it, then further evidence as to their agreement on those matters will be irrelevant.”
In the present case Mr Newman asserts that it is proved – certainly it has not been admitted – that the parties to these proceedings intended that all the express terms of their agreement should be recorded in what I refer to as the 1966 letter. I cannot say that is admitted or proved by evidence. He seeks to shut out all the evidence of Kenneth to which I have referred. He says that simply from the four corners of the 1966 letter he can prove that on any reasonable objective construction of that letter the parties must have intended that letter to record the whole of their agreement on the subject of Kenneth’s pension. His first difficulty is that the letter begins with a reference to only “some” provision. His first submission was that “some” meant “all”. He withdrew from that submission and was content to accept that the expression was neutral; “some provision” meant “provision”. He submitted that various terms relating to the right of the firm to stop paying premiums or to refuse the pension in case of fraud or misconduct and so forth were inconsistent with the promise of a two-thirds final salary pension. But he was not able to submit that the essential clause (clause 3) of the letter was inconsistent with a two-thirds final pension because he had to accept that, dependent upon the accrued profits of the pension policy, it might turn out that the policy would – though not designed expressly to be being a two-thirds final salary policy – yield sufficient funds to provide a two-thirds final salary pension. In this connection he also accepted that the express provision to a cap of two-thirds final salary was again not inconsistent with making provision for a two-thirds final salary pension; that is clearly correct.
However whether or not there are provisions in the letter which are inconsistent with the promise of two-thirds final salary pension – and I am inclined to think there is nothing inconsistent with such a promise, but that does not matter for present purposes – his essential submission had to be that that letter by itself was plain proof that the parties intended that the letter made full exclusive and total provision on the subject matter of Kenneth’s pension.
However in a case like this it seems to me that it is not possible to assert the conclusive effect of a parol evidence exclusion principle without taking into account all the alleged facts and evidence in the case. In this connection it seems to me that paragraph 12-095 in Chitty on Contracts 28th Edn 1999 sets the matter out sufficiently for present purposes. It reads as follows:
“However, the parol evidence rule is and has long been subject to a number of exceptions. In particular, since the nineteenth century, the courts have been prepared to admit extrinsic evidence of terms additional to those contained in the written document if it is shown that the document was not intended to express the entire agreement between the parties. So, for example, if the parties intend their contract to be partly oral and partly in writing, extrinsic evidence is admissible to prove the oral part of the agreement. In Gillespie Bros. & Co. v Cheney, Eggar & Co., [[1986] 2 QB 59, 62] Lord Russell CJ stated
`although when the parties arrive at a definite written contract the implication or presumption is very strong that such contract is intended to contain all the terms of their bargain, it is a presumption only, and it is open to either of the parties to allege that there was, in addition to what appears in the written agreement, an antecedent express stipulation not intended by the parties to be excluded, but intended to continue in force with the express written agreement.’
It cannot therefore be asserted that, in modern times, the mere production of a written agreement, however complete it may look will as a matter of law render inadmissible evidence of other terms not included expressly or by reference in the document. `The court is entitled to look at and should look at all the evidence from start to finish in order to see what the bargain was that was struck between the parties.'”
That last sentence was a citation from the judgment of this court in J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd [1976] 1 WLR 1078, 1083.
So in the present case I cannot see how, as a matter of law, the application of the parol evidence rule can be said – in the face of Kenneth’s witness statements which have for present purposes at any rate to be accepted as correct – that all that evidence must be excluded. On the contrary, the most general rule is that the court should look at all the evidence to see what was the bargain that was struck between the parties in a case such as this where the evidence is that part of the agreement was expressed orally and, on the evidence given by Kenneth, that oral part of the parties’ arrangements was intended to survive the making of the agreement contained in the 1966 letter.
Mr Newman accepted that the question for the court was this: bearing in mind the oral contract or promise alleged, can it be said for certain that the parties must have intended that oral contract or promise to have been superseded by a written contract intended to contain all of the parties’ arrangements? For reasons which I have indicated I cannot see that that is a question which can be determined on the evidence currently before the court in the summary fashion in which the judge dealt with it.
There is also the question of collateral contract. Collateral contracts are a well-known exception to the parol evidence rule in any event. One comes back to the same question: was what is relied on as being a collateral contract intended to be superseded by the ultimate contract or intended to survive as a matter of contract collateral to the ultimate contract? Ultimately, it is the same question. However in the context of collateral contracts, Mr Newman went on to submit that the oral contract, the oral promise of a two-thirds final salary pension, was not a collateral contract at all in that it did not fit into two categories of cases identified by him, being in the first place cases where a statement is made which leads a party to believe an exemption clause will not be relied upon and, in the second place, cases where a promise is made that a particular provision of the written contract will not be relied upon.
I doubt myself that the question of collateral contract can be categorised in that way. It is not necessary, however, to come to any conclusion about it. It seems to me that one must not be misled in this connection by the mere names of things. It seems to me not to matter whether the alleged oral promise of a two-thirds final salary pension is regarded as part of the contract of employment or collateral to the contract of employment or collateral to the contract contained in the 1966 letter. It may be that it is only necessary to talk in terms of collateral contract in particular circumstances where the only consideration given for the antecedent promise is the entering into of the main contact. That perhaps is a typical case of a true collateral contract. It matters not, for one must not be misled by these terms, provided there is evidence of two contracts side by side. It hardly matters for these purposes whether the antecedent contract is oral or in writing. The question remains – is that antecedent contract intended to survive the making of the subsequent or main contract or is it intended to be swallowed up by and superseded by the later contract? Those are questions which it may be can only be resolved on a consideration of the complete evidence as to the parties’ objective intentions and following an attempt to construe two contracts side by side.
Of course, when I speak of complete evidence relating to those contracts it should be understood as going without saying that I do not mean to embrace in such evidence evidence which, on different or narrower aspects of what is called the parol evidence rule, is in any event inadmissible. Thus it is not in dispute in this case that the subjective intentions of the parties are irrelevant and inadmissible. It is not in dispute in this case that mere negotiations in the sense discussed by the House of Lords in Prenn v Simmonds [1971] 1 WlR 1381 are not admissible. But this case is not concerned with an attempt to give evidence of mere subjective intention or an attempt to give in evidence mere negotiations leading to a written contract. The evidence which is in dispute in the witness statements of Kenneth is evidence regarding a completed oral agreement relating to the terms on which Kenneth was willing to give up his employment at the AA and join the family firm.
The question is, as I have said before, whether those contractual arrangements were intended to be wholly superseded and replaced by the 1966 letter or could continue to live side by side with that letter. That is not a question which this court or the court below could have decided without a trial. It therefore follows that this appeal against the summary dismissal of Kenneth’s case should be allowed.
THE VICE-CHANCELLOR: I agree.
Hamid (t/a Hamid Properties) v Francis Bradshaw Partnership
Jackson LJ
Part 5. The law
The parol evidence rule has been part of the common law for over two centuries. This provides that where there is a written contract, oral evidence cannot be received to add to, subtract from or vary the written terms: see Chitty on Contracts, 13th Edition, paragraph 12-096. Although the contract in the present case is partly oral and partly written, counsel have referred to the parol evidence rule in relation to the interpretation of the letter dated 10th March 2004.
There are a number of exceptions to the parol evidence rule and these have increased in recent years. This may in part be due to the increasing ease and speed with which documents can be created and dispatched. The temptations of the keyboard, the ‘cut and paste’ facility and the mouse cannot always be resisted.
Lord Hoffmann has authoritatively stated the modern approach to interpreting written contracts in Investors Compensations Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at pages 912-913 as follows:
“(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
(2) The background was famously referred to by Lord Wilberforce as the “matrix of fact,” but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.
(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co. Ltd. v. Eagle Star Life Assurance Co. Ltd. http://www.bailii.org/uk/cases/UKHL/1997/19.html[1997] AC 749.
(5) The “rule” that words should be given their “natural and ordinary meaning” reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had….”
It should be noted that this formulation of the principles does not require the court, when construing a document, to take into account matters which the parties might have discovered but did not in fact discover.
A discrete body of case law has developed concerning contracts in which the identity of parties is in controversy. Such cases constitute an exception to the parol evidence rule. Extrinsic evidence may be admitted to establish the correct identity of a party: see Fung Ping Shan v Tong Shun [1918] AC 403 at pages 406-407.
In F. Goldsmith (Sicklesmere) Ltd v Baxter [1970] 1 Ch 85 a piece of land was conveyed to a company in the wrong name. The company’s correct name was F. Goldsmith (Sicklesmere) Ltd. The incorrect name printed on the conveyance was Goldsmith Coaches (Sicklesmere) Ltd. Stamp J received evidence as to how the mistake had come about. He then granted relief, the effect of which was that F. Goldsmith (Sicklesmere) Ltd became the owner of the land.
In Badgerhill Properties Ltd v Cottrell [1991] BCC 463 the plaintiff company claimed £14,327 in respect of work, services and materials sold and delivered by the company to the defendant, ‘C’, under contracts constituted by three written estimates, as revised, signed by C by way of acceptance. The estimates were given on notepaper which was headed with a trading name (“The Plumbing Centre” on two estimates and “Wendell (Builders)” on the other) and on which the name “Badgerhill Property Ltd” appeared at the foot. The misdescription of the company was a printer’s error. The word “Property” should have been “Properties”. The estimates were signed by a director of the company, “T”. The relevant name appeared above T’s signature, and on the two plumbing centre estimates the word “director” appeared below. The plaintiff company succeeded in its claim. The Court of Appeal concluded that in two instances the defendant was contracting with whatever company was trading under the trading name “The Plumbing Centre”. In the third instance the defendant was contracting with whatever company was trading under the name “Wendell (Builders)”.
Crucial features of this case are that T expressly signed two of the estimates as “director”. The name of the limited liability company was printed at the foot of the page with one small inconsequential error.
In Internaut Shipping GmbH v Fercometal SARL [2003] EWCA Civ 812, [2003] 2 Lloyds LR 430 the defendant chartered a vessel on the Gencon form. In box three of the form the owners’ name was stated to be “Sphinx Navigation Ltd, Liberia C/O Internaut Shipping GmbH”. At the end of the form was a box headed “Signature/Owners”. The owners’ name was there shown as Internaut Shipping, followed by an address with a signature over the stamp. The Court of Appeal held that the contracting party was Internaut Shipping. That company was not to be treated as having contracted on behalf of Sphinx Navigation Ltd. Rix LJ, with whom Mummery and Sedley LJJ agreed, stated the relevant principles as follows at paragraph 53:
“It may be asked, indeed the question was raised in the course of argument, why the principle whereby particular attention is paid to the form of the signature, which is in effect a maxim of construction and not a rule of law, exists: from where does it take its force? I would answer that it reflects the commercial facts of life, the promptings of commercial common sense. The signature is, as it were, the party’s seal upon the contract; and that remains the case even where, as here, the contract has already been made (in the fixture telexes). Prima facie a person does not sign a document without intending to be bound under it, or, to put that thought in the objective rather than subjective form, without properly being regarded as intending to be bound under it. If therefore he wishes to be regarded as not binding himself under it, then he should qualify his signature or otherwise make it plain that the contract does not bind him personally.”
Shogun Finance Ltd v Hudson [2003] UKHL 62, [2004] 1 AC 919 concerned a motor vehicle which a fraudster acquired on hire purchase in a false name and then re-sold to an innocent purchaser. For present purposes, I need not trace the history of this litigation or the intricacies to which it gave rise. The important statement of principle, to which counsel have drawn attention in this appeal, is at paragraphs 119 to 121 of Lord Phillips’ speech. This passage is as follows:
“119. The critical issue in this case is whether a hire-purchase agreement was ever concluded between Shogun and the rogue. If an agreement was concluded, then the rogue was the ‘debtor’ under section 27 of the 1964 Act and passed good title in the vehicle to Mr Hudson. If no agreement was concluded, then the rogue stole the vehicle by deception and passed no title to Mr Hudson.
“What’s in a name?”
120. This area of the law has developed because of confusion about names and it may be helpful at the outset to reflect on the nature of a name. Words in a language have one or more ordinary meaning, which will be known to anyone who speaks that language. Names are not those kind of words. A name is a word, or a series of words, that is used to identify a specific individual. It can be described as a label. Whenever a name is used, extrinsic evidence, or additional information, will be required in order to identify the specific individual that the user of the name intends to identify by the name – the person to whom he intends to attach the label. Almost all individuals have two or more names which they use to identify themselves and where a name is mentioned in a particular context, or a particular milieu, those who hear it may have the additional information that they need to identify to whom the speaker is referring.
121. Where a name appears in a written document, the document itself may contain additional information which will enable the reader to identify the individual to whom the writer intended to refer when he wrote the name.”
In Estor Ltd v Multifit (UK) Ltd [2009] EWHC 2565 (TCC) an issue arose as to which company within a group of companies known as Ginger Group was the employer under a building contract. Akenhead J took as his starting point the passage in Lord Hoffmann’s speech in Investors Compensation Scheme which I have quoted above. He then stated that where the identity of a contracting party was unclear, it was legitimate to consider what the parties said to each other in the period leading up to the offer and acceptance. He added that the correct approach was an objective one. The court would take into account facts known to both parties, but not their private thoughts. I agree with that analysis.
In my view the principles which emerge from this line of authorities are the following:
i) Where an issue arises as to the identity of a party referred to in a deed or contract, extrinsic evidence is admissible to assist the resolution of that issue.
ii) In determining the identity of the contracting party, the court’s approach is objective, not subjective. The question is what a reasonable person, furnished with the relevant information, would conclude. The private thoughts of the protagonists concerning who was contracting with whom are irrelevant and inadmissible.
iii) If the extrinsic evidence establishes that a party has been misdescribed in the document, the court may correct that error as a matter of construction without any need for formal rectification.
iv) Where the issue is whether a party signed a document as principal or as agent for someone else, there is no automatic relaxation of the parol evidence rule. The person who signed is the contracting party unless (a) the document makes clear that he signed as agent for a sufficiently identified principal or as the officer of a sufficiently identified company, or (b) extrinsic evidence establishes that both parties knew he was signing as agent or company officer.
In my fourth proposition the phrase ‘sufficiently identified’ is not a happy one. It is intended to include cases where there is an inconsequential misdescription of the entity on behalf of whom the individual was signing. This is exemplified by Badgerhill Properties.
With the benefit of this guidance from the authorities, I must address the issues in the present case.
Kazeminy & Ors v Siddiqi & Ors
[2009] EWHC 3207
Teare J
Inadmissibility of evidence as to the alleged oral agreement
There is long standing authority that a contemporaneous oral agreement cannot be set up to contradict the terms of a promissory note; see Chitty on Contracts 30th.ed. at para.12-101, Young v Austen (1868-69) LR 4 CP 553, New London Credit Syndicate Limited v Neale [1898] 2 QB 487 and Hitchings v Northern Leather Company [1914] 3 KB 907. It was submitted on behalf of the Claimants that the defence based upon the alleged overarching agreement is therefore inadmissible and would inevitably fail as a matter of law.
On behalf of the Defendants it was submitted that the reasoning in such cases was based on the parol evidence rule, that that rule has been subject to restrictions since the nineteenth century and that the courts are in fact prepared to admit extrinsic evidence if it is shown that the written instrument was not intended to express the entire agreement between the parties; see Chitty at paras. 12-096 – 12-100. It was further submitted that no special rule applied to bills of exchange or promissory notes. In the present case the Defendants will seek to use the evidence as to the alleged oral agreement in one or more different ways including a wider agreement going beyond the terms of the written notes, a collateral contract and an estoppel by convention.
Bills of exchange and promissory notes have always been treated as analogous to the payment of cash. Unliquidated cross-claims cannot be set-off against them. Such is the importance of bills of exchange and promissory notes as a means of payment in commerce that the courts are reluctant to allow “any erosion of the certainties of the application by our Courts of the law merchant relating to bills of exchange”; see Cebora SNC v SIP (Industrial Products) Ltd. [1976] 1 Lloyd’s Rep. 271 at p.278. It is to be expected therefore that the Defendants will encounter difficulty in persuading the Commercial Court that the long established principle relied upon by the Claimants is not what it seems and is subject to exceptions.
However, there is support for the proposition that the principle in question is based upon the parol evidence rule rather than upon any provision of the Bills of Exchange Act 1882; see New London Credit Syndicate Limited v Neale [1898] 2 QB 487 at p.490. There is also support for the proposition that the parol evidence rule does not prevent a party from adducing evidence to prove that a written document is not a complete record of the parties’ agreement; see Chitty at the paragraphs mentioned above. It is therefore arguable that the basis of the principle has been eroded and that the principle may not be as absolute as the cases suggest. I am told that no modern case has examined the application of the parol evidence rule to bills of exchange or promissory notes. In those circumstances there appears to me some scope for arguing that where there is evidence that the note does not contain the parties’ entire agreement extrinsic evidence is admissible to establish the parties’ entire agreement. The contrary argument is that the effect of the requirement in the Bills of Exchange Act 1882 that bills of exchange and promissory notes must be in writing is that they cannot be varied by an oral agreement; see Chitty at para.12-101. However, this was not said to be the basis of the principle in any of the cases to which reference has been made. Those cases suggest that the basis of the principle was the parol evidence rule. It is to be noted that in Chalmers and Guest on Bills of Exchange, Cheques and Promissory Notes 17th.ed. the following is stated at para.2-157:
“Exceptions to the parol evidence rule. There are a number of exceptions to the parol evidence rule, or, more accurately, situations where the parol evidence rule will not be applied. The dividing line between the rule and the “exceptions” is often subtle, and it is not particularly useful to try to reconcile apparently conflicting decisions. In the result, the scope of application of the rule is an area of difficulty and uncertainty for the practitioner. That difficulty and uncertainty is exacerbated by the fact that, in relation to bills and notes, the majority of the decisions on the application or non-application of the rule date from the nineteenth century and do not necessarily reflect the somewhat more relaxed approach which is adopted by the courts in respect of contracts generally.
Where the exceptions apply, even oral evidence may be admitted to qualify the ostensible contract of a party on the instrument. However, a person to whom a bill or note is negotiated or delivered is entitled to assume that each party’s promise is absolute and unqualified unless it is otherwise indicated on the instrument itself. In most cases, therefore, extrinsic evidence will be admissible only as between immediate parties, or as regard a remote party who took the instrument with knowledge of the qualification.”
The present dispute is between the immediate parties to the promissory notes. I find myself unable to dismiss the Defendants’ argument on the law as one which is bound to fail. This hearing is not the appropriate occasion on which to determine whether that argument is correct. If there are relevant exceptions to the principle relied upon by the Claimants they are likely to be fact sensitive. The appropriate time to decide this important question of law is at trial when the court has heard all the evidence. This is particularly so in the present case where, on the Defendants’ case, the terms of the promissory notes are affected by the provisions of the written agreements dated 20 September 2006 and 23 January 2007 which agreements are in turn said to be supplemented by an oral agreement.