JUDGMENT of Mr. Justice Fennelly delivered the 14th day of November 2012.
1. This is an appeal by the defendant from an order of the High Court (Clarke J) made in the Commercial List on the 20th September 2011. The trial judge found that a contract between the 1st named plaintiff and the defendant was not validly terminated and held that the 1st named plaintiff was entitled to damages for breach of contract. He held that the 2nd named plaintiff was entitled to damages in tort to be assessed in accordance with the law of the Kingdom of Saudi Arabia.
2. The proceedings concern access to the private training sector in the Kingdom of Saudi Arabia (“KSA”) allegedly without the consent of Technical and Vocational Training Corporation (hereinafter “TVTC”) the relevant state authority in KSA.
3. The parties have helpfully formulated a list of what are agreed to be the issues on the appeal. The facts are very fully recounted in the High Court judgment. There is little or no controversy about the essential primary facts, in the ordinary sense. There are, however, some disputes about inferences drawn from the facts. There is a central disagreement relating to the findings in respect of the law of the Kingdom of Saudi Arabia and, in particular, about the way in which the learned judge treated the evidence of certain witnesses. There are also some disputes concerning the factual basis of the findings of gross negligence made against the Foundation. I will set out an abbreviated account of the relevant facts.
The facts
4. The appellant, which, like the learned trial judge, I will describe as “the Foundation,” is a non-profit entity, an Irish registered company limited by guarantee, not having a share capital. Its members are computer societies or associations of IT professionals, one from each of the 28 European countries, who are also members of the Council of European Professional Informatics Societies. Its Chief Executive is Mr. Damien O’Sullivan. The Foundation provides the ECDL, or “European Computer Driving Licence,” designed to promote skills and literacy in Information Technology. Its programme has three components. They are the issue of a skills card (a card which records the enrolment and progress of the candidate through the course), the provision of course materials in accordance with a syllabus, a testing base or solution (which is essentially the examination questions and process, also generally conducted online) and the award of a certificate. It provides an internationally recognised method of certification of skills in information technology. Outside Europe the programme is branded as the International Computer Driving Licence. It was launched in 1999. The Foundation licenses individual companies or bodies to provide the programme in different countries or regions.
5. The subject-matter of the present proceedings is a licensing agreement in relation to the seven countries of the Gulf Co-operation Council, most importantly the KSA, upon which the entire dispute centres.
6. The first-named plaintiff/respondent (hereinafter the Dubai company) is a body corporate which has its headquarters in Dubai, United Arab Emirates. The second-named plaintiff/respondent (hereinafter “TAM”) is a company incorporated in Riyadh, KSA. It trades as “ICDL Saudi Arabia.” Mr. Marwan Al Bawardi is the Chief Executive Officer of both plaintiffs. TAM has also traded under the name “Element K” as a provider of IT training materials and e-learning solutions serving a variety of organisations over a period in excess of 20 years, both in the Middle East and elsewhere.
7. In late 2002, TAM approached the Foundation with a view to introducing its programme to KSA.
8. TAM had a close working relationship with a Saudi entity, the Technical and Vocational Training Corporation (“TVTC”) whose behaviour became central to the entire dispute, although it is not a party to the action. TVTC is a governmental body charged with responsibility for vocational education and training in KSA. The precise nature and extent of TVTC’s legal power and responsibility became the central bone of contention in the litigation. The purported termination by the Foundation of the licence agreement, which is the subject-matter of the action, was based on a view of TVTC’s powers. It will be necessary to return to it in some detail.
9. The agreement (hereinafter “the licence agreement”) which is the subject-matter of the present litigation is one whereby the Foundation licensed the Dubai company for seven countries of the Gulf Co-operation Council. It is dated 25th April 2006. The legal issues on this appeal are all concerned with the agreement between the Foundation and the Dubai company.
10. The learned trial judge explains the rather more complex history and background at paragraph 3 of his judgment. From about 2003, multiple possible agreements or relationships were considered or entered into. As already stated, TAM had an established relationship with TVTC. At one point, it was envisaged that TVTC would become the licensee for the programme in KSA, but this turned out not to be feasible because TVTC considered that, as a governmental body, it could not enter into certain proposed warranties or indemnities. Next, it was agreed that TAM would become the licensee. Then, TAM contemplated expanding into the Gulf region more generally. The Dubai company, was formed to facilitate that purpose. That is why the Dubai company is the contracting company with the Foundation, having the licence for the region, with TAM operating as sub-licensee to the Dubai company for KSA. The terms of the sub-licence largely replicate those of the Licence, with some modifications. In addition, in 2003, TAM entered into a five year agreement with TVTC. The terms and interpretation of that agreement was the basic cause of the breakdown of relations between those two parties and ultimately all round, and which led in turn to this litigation. Clarke J sets out many of the crucial terms in some detail. For the purposes of this agreement, it will suffice to refer to the disputes in general terms and as a matter of fact. It should be noted that the licence agreement is between the Dubai company and the Foundation. Although the relationship (and disputes) between TAM and TVTC form the essential factual background to the dispute, the Foundation has no contractual relationship with either of those entities.
11. Four different parties play important parts. The Foundation, as already stated, licenses the Dubai company in respect of the “designated territory” consisting of seven countries, including KSA, named in Schedule 3 to the licence agreement. The Dubai company separately licenses TAM for the programme in respect of KSA alone. As already stated, Mr. Marwan Al Bawardi is the Chief Executive Officer of both. They have a common interest and are co-plaintiffs in the action. TVTC, because of its relationship with TAM, its powerful position in KSA and its interest in the programme is a key actor, though not a party to the action. The Foundation is the owner of the programme, in which all the other parties are interested.
12. I propose to adopt the description by the learned trial judge of the breakdown between the Dubai company/TAM on the one hand and TVTC, which was as follows:
“In December 2009, TAM was in discussions with TVTC regarding the financial terms of their agreement, in particular in light of the Al Yasser Project, which involved the provision of the Dubai company programme to all government employees across a number Saudi Arabian governmental ministries. This project would have encompassed several hundred thousand candidates. TVTC had secured this contract which required it to train the Al Yasser project’s participants using the Dubai company’s standards. TVTC were seeking 20% of TAM’s total revenues and to hold the the Dubai company licence for Saudi Arabia, in exchange for which they proposed to allow TAM to operate the Programme as a sub-licensee. TAM indicated that it was not minded to significantly deviate from its standard pricing model and as a result relations between the two parties further deteriorated. TAM had previously informed the Foundation of the difficulties in its relationship with TVTC in November 2009. At that time it was the plaintiffs’ view that it had developed its business to such an extent that they remained confident of its prospects even in circumstances where TVTC proved unreasonable.”
13. Relations between TAM and TVTC, represented by Dr Saleh, were at a very difficult stage in early 2010. Dr Saleh alleged multiple breaches of contract by TAM and claimed that TAM was operating without a licence. He claimed that TVTC was entitled to a 20% discount in its sector and complained about TAM’s prices. He wrote by email to Mr. O’Sullivan on 14th January 2010 seeking his involvement to “solve these problems.” Otherwise, he threatened that TVTC would “take all legal and lawful actions to protect its rights and the rights of other parties and [would] be forced to re-evaluate the program’s quality and accreditation and to introduce other options.”
14. Mr. Al Bawardi believed that TVTC was unwilling to recognise TAM’s role as national licensee for KSA. He warned Mr O’Sullivan that TVTC was overstating its position and claimed in particular that TVTC’s role was confined to TVTC centres and to private training centres under its jurisdiction. Mr. Al Bawardi advised caution in dealing with Dr. Saleh and specifically counselled against Mr. O’Sullivan travelling to meet him. Mr. O’Sullivan was anxious that the dispute be resolved and believed that the Foundation could contribute to resolving these difficulties. In an email of 27th January 2010 to Mr. O’Sullivan, Dr Saleh restated TVTC’s position in strong terms:
“The TVTC, as previously stated, will not tolerate any delinquencies, deceits, breaches and violations of obligations, terms and conditions in the Contract committed by [TAM]. The TVTC will exercise in full force its legal and lawful rights and authority as the government body responsible for the quality assurance of the technical education and training.”
“Moreover, the TVTC had built the relationship with the company on trust. However, after we discovered breaches and defaults in the Contract Agreement and problems of quality assurance, TVTC started to investigate the issues. Now, after we have read your e-mail and your understanding, it is clear that there is misconduct as we have explained above. The TVTC would like to confirm that we must contact directly without the other party’s involvement.”
“Finally, if action is not taken in due time, TVTC will have no choice but to stop recognition of the program in Saudi Arabia.”
15. In these circumstances Mr. O’Sullivan travelled to KSA and met Dr. Saleh on 10th February over the opposition of the plaintiffs. He was informed that TVTC, having failed to reach agreement with TAM, were prepared to formally withdraw their support of ICDL and to disassociate TVTC from the programme. He noted that TVTC were prepared to shut the programme down and said that the Foundation could not have a situation where the Dubai company was not approved by TVTC.
16. By letter dated 13th February 2010 TVTC requested that TAM cease entering into new contracts, maintaining that TAM did not hold the necessary permit from it so as to enable it to continue to do so. It also wrote to the Foundation stating that it was the government body responsible for the awarding, licensing and accreditation of training in KSA and that the second plaintiff was operating illegally. Clarke J continued:
“On the 31st May, 2010, TVTC issued a letter to TAM directing that they stop the ICDL Programme on the grounds that [they] had not expressed “seriousness in signing new agreement with TVTC” and as such must “stop all dealings related to this expired agreement and put an end to all test sessions.”
TAM has initiated proceedings before the Saudi Arabian courts against TVTC seeking a number of reliefs, namely: the quashing of its decision to terminate the TVTC Agreement; an order for specific performance of the TVTC Agreement and an order for compensation for all damages and losses suffered by TAM as a result of TVTC’s actions.”
17. In short, there were disputes between TAM and TVTC. There were some complaints about quality, though the Dubai company has said at the hearing of the appeal that they were trivial. There was a dispute about TVTC’s claim to be entitled, under arrangements between those two parties, to 20% of TAM revenues in respect of parts of the business. The rights and wrongs of these disputes are not, in themselves, capable of resolution by or even a matter for the Irish courts. TVTC is not a party to the action and, as Clarke J said, there are proceedings between the parties in KSA. It appears, however, that the Foundation had no reason to be dissatisfied with the performance of TAM (as licensee of the Dubai company). Certainly, TAM maintains that TVTC was promoting the dispute as a means of putting a stop to its business. The significance of the dispute is that it led TVTC to terminate all relations with TAM and to allege, rightly or wrongly, that TAM was operating unlawfully in KSA, because it did not have the required licenses or consents to do so from TVTC. TVTC claimed to have the exclusive power of licensing under Saudi law. That contention led, in turn, to the decision by the Foundation to purport to terminate the licence agreement.
18. On 13th February 2010, Dr Saleh Alamr, Vice Governor of TVTC wrote to Mr O’Sullivan expressing pleasure at their recent meeting and saying:
“TVTC, as previously mentioned in my emails and explained to you during our discussions, will not tolerate any breaches and violations of obligations, terms and conditions of its Contract with [TAM]. TVTC will exercise in full force its legal and lawful rights and authority as the government body responsible for awarding, licensing and accreditation of training in the Kingdom of Saudi Arabia.
“I would like to inform you that due to the weak quality assurance measures and violations of the contract, TVTC will not extend its contract with [TAM]. Moreover, since the contract with [TAM] is already expired, We deem that [TAM] is illegally operating a training related program and awarding certifications in Saudi Arabia.”
19. On 23rd February 2010, the Foundation sent to the Dubai company the letter purporting to give notice of termination of the agreement, which this case is principally about. It was as follows:
“We have been informed by the Vice Governor……………of TVTC, a Government body in the Kingdom of Saudi Arabia that any operation by [TAM] of the ICDL certification program in Saudi Arabia, without its consent, is in breach of the law of the Kingdom of Saudi Arabia. We have been informed that it is necessary for [TAM] to obtain a licence to do so from TVTC, and that no current licence has been obtained or granted.
“Accordingly, we have no option but to rely on clause 14.1 of the Agreement, which provides that you are required to obtain at your expense all licences, permits and consents necessary for you to carry on business in the designated territory (which includes Saudi Arabia). Accordingly, any operation of the ICDL certification program in Saudi Arabia by you, without TVTC’s consent is in breach of that clause and hence of the Agreement. We therefore call upon you to rectify this breach within sixty (60) days of today’s date. Otherwise the Agreement and consequently any sub-licence will terminate in respect of Saudi Arabia in accordance with clause 16.1.4. We trust that you will cooperate with us and the Government of Saudi Arabia, and acknowledge that this request is necessary as a result of the terms of the Agreement and the licence requirements and legal position in Saudi Arabia.”
20. That letter is described as the “cure letter,” because it calls on the opposing party to remedy an alleged breach of contract within a specified time. The Dubai company claims that the letter did not validly terminate the agreement, principally because it was based on an incorrect view of its obligations under the law of KSA. At a later point, 19th August 2010, the Foundation, by its solicitors wrote to the Dubai company purporting to treat the licence agreement as having been terminated at the end of sixty days from the date of the cure letter. The Dubai company also disputes the validity of that act.
21. By letter dated 2nd March 2010, a London firm of solicitors, Squire Saunders, wrote to Mr O’Sullivan on behalf of the Dubai company. They stated that they had been “instructed by [their] client and [were] advised by its local Saudi Arabian lawyers that [TAM was] not operating illegally”. It quoted the correspondent in KSA of Freshfields LLP as having confirmed to them that, “on its understanding, since [TAM] does not operate a training programme or training centre, but is rather an international standards and certification body, no permit or licence is required.” It said that there was no question of TAM operating illegally. The solicitors went on to complain that the Foundation was purporting to require their client “to remedy a breach and to immediately suspend services based upon unsubstantiated and baseless allegations made by a third party”.
22. On 5th March 2010, A & L Goodbody, solicitors, replied on behalf of the Foundation saying that their client was “entitled to rely upon the statements of law provided by a Government authority in the jurisdiction” and that if the Dubai company had “any difficulty with reliance……on those statements, it should take the matter up directly with TVTC.” They asked for sight of the legal opinion provided to Freshfields LLP. In a later letter (29th March 2010) they asserted that “TVTC’s statement of the law in Saudi Arabia provided to [their] client [was] sufficient basis for the exercise of its right to issue a 60 day termination notice in accordance with the terms of the Agreement.” They insisted that it was entitled and would “continue to rely upon those statements to justify the legal steps it [had] taken.” The Dubai company did not otherwise engage with the argument that TAM did not need any licence from TVTC, since it was not providing training in KSA .
23. Correspondence from solicitors acting for the Dubai company during this period expressed serious concern that the Foundation were taking steps in co-operation with TVTC to provide the programme in the KSA, about information given by the Foundation to TVTC and to the press in the KSA and that all of this was seriously damaging to the interests of the Dubai company.
24. On 19th August 2010, A & L Goodbody wrote to William Fry, solicitors then acting for the Dubai company as follows:
“Our client served a Notice of Termination of the Agreement on your client on 23 February 2010 calling on your client to rectify its breach of Clause 14.1 of the Agreement within sixty days, failing which its licence and any sub-licence under the Agreement would terminate in respect of Saudi Arabia in accordance with Clause 16.1.4. As your client is fully aware, it failed to remedy its breach and the Agreement has therefore terminated.”
25. The letter called on the Dubai company immediately to cease all activities in that territory.
Relevant terms of the licence agreement
26. At this point it is necessary to refer to the terms of the agreement which are in contention. For brevity and clarity, I will refer to each relevant term and the issue which arises in the action and on the appeal.
Clause 14.1; licenses, permits and consents
27. Clause 14.1 provides:
“The Licensee understands and agrees that the exercise of the licence granted to the Licensee under this Contract is subject to all applicable laws, enactments, regulations and other similar instruments in the Designated Territory (including, without limitation, all applicable local laws relating to advertising, broadcasting, health and safety and telecommunications), and that the Licensee shall at all times be solely liable and responsible for such due observance and performance. The Licensee shall obtain at its own expense all licences, permits and consents necessary for it to carry on its business in the Designated Territory.”
Clause 16; termination
28. Clause 16 of the licence agreement provides:
1. “ECDL-F may terminate this Contract forthwith, by giving written notice to the Licensee:
[paragraphs 16.1.1 to 16.1.3 are not relevant]
4. If the Licensee is in breach of any obligations under this Contract, and, where such breach is capable of remedy, fails to rectify the breach to the satisfaction of “ECDL-F within sixty (60) days of written notice by ECDL-F.”
29. The Foundation contended that the obligation imposed by the second sentence was not merely to comply with obligations duly imposed by the law KSA, but extended to cover the present case, where TVTC had the power, as a matter of fact, to prevent the Dubai company from carrying on business in KSA.
30. The learned trial judge held, further, that a second notice was, in any event required. If the cure notice had been validly served, the Foundation had to serve a second notice availing of the failure of the Dubai company to remedy the breach of which it complained.
31. In the event, however, the learned judge held that the second notice, if it could be valid, had been given in the form of the letter of 19th August 2010 from A & L Goodbody, solicitors for the Foundation, already quoted.
Clause 26: partial termination
32. The letter of 23rd February, as seen above, related only to KSA. It did not purport to give notice in respect of the licence agreement as a whole. The Dubai company said and still say that the licence agreement contains no provision for partial termination: it can only be terminated in its entirety. They have relied on clauses 26.2 and 26.3, which provide as follows:
“26.2 The failure by either party to exercise or enforce any rights under this Contract shall not be deemed to be a waiver of any such rights, nor shall any single or partial exercise of any right, power or privilege, or further exercise thereof, operate so as to bar the exercise or enforcement thereof at any later time.
26.3 The waiver of either party of any breach of any of the terms of this Contract by the other shall not be deemed to be a waiver of any such rights, nor shall any single or partial exercise of any right, power or privilege, or further exercise thereof, operate so as to bar the exercise or enforcement thereof at any later time.”
Clause 25 of the licence agreement is headed: “Limitation of Liability”
33. Clause 25 provides as follows:
1 “The Licensee’s exclusive remedy and the total liability of ECDL-F in respect of any cause of action relating to or arising out of this Contract will, to the extent that it is not caused by a wilful act or gross negligence by ECDL-F, not exceed 10 per cent of the total amounts paid to ECDL-F by the Licensee or €50,000.00, whichever is the lesser amount.
2 In no event will either party be liable for incidental, indirect or consequential damages, including but not limited to loss of profits. This limitation shall not apply to claims due to damage caused by the use or copying of the ECDL Concept or the transfer of assignment of the Licence in violation of the terms and conditions of this Contract.”
The proceedings
34. On 11th November 2010, the plaintiffs issued proceedings. The Dubai company claimed a declaration that the licence agreement had not been terminated, specific performance and damages. TAM claimed damages for wrongful interference with its economic interests and/or negligence. The Dubai company alleges that the Foundation wrongfully and in breach of contract sent the letter of 23rd February 2010, insofar as that letter asserted that the Dubai company was in breach of its obligation to obtain all licences, permits and consents necessary for it to carry out business in KSA, when no licence was in fact required. It alleged that the Foundation had, on 19th August 2010, wrongfully, and in breach of contract, asserted that the licence agreement had been terminated. The plaintiffs claimed that the acts of purported termination of the agreement were null and void and of no legal effect on the following three specified grounds:
1. the Dubai company was not in breach of Clause 14.1 of the agreement (the requirement to obtain all necessary licences and consents);
2. the Foundation had purported to terminate the agreement in respect of KSA only, whereas the agreement did not provide for termination in respect of one only of the territories which it designated;
3. even if the cure notice had been validly given, the agreement did not terminate automatically and the Foundation had given no written notice of termination.
35. The plaintiffs also allege that the Foundation committed breaches of a number of its obligations under the agreement, in particular obligations of confidence, by engaging in direct liaison and discussions with TVTC in relation to the status of the plaintiffs as licensee and sub-licensee of the Foundation. These and other acts are alleged to have caused damage to the interests and reputation of the plaintiffs in KSA. These matters do not arise for consideration on this appeal, which is concerned essentially with the validity of the termination of the agreement.
36. The Foundation joined issue with the plaintiffs’ allegations of invalidity of the cure notice on grounds which will become obvious as the arguments are considered. It is specifically pleaded that, by virtue of Clause 25.1 of the licence agreement, the total extent of, any liability of the Foundation cannot exceed 10%of the total amounts paid to it by the Dubai company or €50,000, whichever is the lesser amount. The Foundation has filed a counterclaim with its defence. This also does not fall to be considered on this appeal.
37. A modular trial of the issues was conducted in the High Court. Clarke J heard those aspects of the case which related to the liability of the Foundation over ten days in May and June 2011. He described the kernel of the case as relating to the lawfulness or otherwise of the termination of the licence agreement. All questions of quantification of damages were left over for decision at a later date, save for a question concerning the right of the Foundation to rely on Clause 25.1 of the agreement in order to limit damages to the extent mentioned above. He delivered judgment on 4th August 2011.
38. It is convenient, at this point, to set out the list of issues agreed between the parties for the purposes of the appeal. Although, this may appear to be out of sequence, it enables the judgment of the learned trial judge to be summarised in the light of the live issues on the appeal. The list of agreed issues is as follows:
1. Whether the High Court erred in finding that the Plaintiffs did not breach Clause 14.1 of the Licence Agreement, the core issues in dispute in this regard being:
i. the proper interpretation of Clause 14.1 and in particular the meaning in that clause of the wording “all licences, permits and consents necessary for it to carry on its business;”
ii. whether the Second Plaintiff provided training in the Kingdom of Saudi Arabia (“KSA”);
iii. whether a licence, permission or consent is required from TVTC which is necessary for the Plaintiffs to carry on their business in KSA.
2. Whether the High Court erred in finding that the Defendant was not entitled to partially terminate the Licence Agreement.
3. Whether the High Court erred in finding that the termination was not invalid having regard to the notice procedures followed by the Defendant in respect of same.
4. Whether the High Court erred in finding that the Defendant’s conduct was such as to deprive it from relying on the limitations of liability contained in Clause 25.1 of the Licence Agreement on their proper interpretation.
5. Whether the High Court erred in finding that the Defendant was liable under the laws of the KSA to the First and Second Plaintiffs due to acts or omissions based on negligence.
39. Issue number 5 was not pursued on the appeal. Accordingly, the appeal is concerned exclusively with the first four issues, which are all contractual questions.
40. The conclusions of Clarke J on each of these issues can be summarised as follows.
Clarke J on issue no.1:
41. Clarke J held that the requirement of Clause 14.1 that the licensee had to “obtain at its own expense all licences, permits and consents necessary for it to carry on its business in the Designated Territory,” was “concerned with matters which are required in order that the operation be lawful, rather than commercially successful.”
The word “necessary” suggested something more than mere usefulness in promoting commercial success. Moreover, the use of words such as “license, permit or consents” implied matters that are required in order that an activity be lawful. Thus, “as a matter of interpretation,” the obligation placed on the licensee (in this case, the Dubai company ) was to ensure that it had “all licenses, permits and consents where the absence of such licenses, permits or consents would render the operation of the programme in Saudi Arabia unlawful.”
42. In this context, and apart from any consideration of the extent of the legal powers of TVTC in KSA, Clarke J did not doubt that the practical inability of the Dubai company (in reality, TAM as sub-licensee) to access the market for private training, due to the opposition of TVTC to TAM’s operations would be a significant commercial disadvantage in operating in the Saudi market. Nonetheless, unless that opposition rendered TAM’s operation in KSA unlawful, the fact that TAM might not find it possible to access the private training centre sector would not, of itself, mean that TAM had failed to obtain a licence, permit or consent necessary to carrying on business in KSA .
43. There remained, therefore, the question of whether it was, as a matter of the law of KSA, for the Dubai company (via TAM) to have a license from TVTC to operate in the private training sector in that country.
44. The learned trial judge received written statements and heard oral evidence from a number of experts in the law of KSA, called respectively by the Dubai company and the Foundation.
45. He referred to the evidence of two experts in Saudi law who were called on behalf of the Dubai company. They were Dr. Waleed Nasser Al-Nuwaiser, a Saudi Arabian lawyer, who had represented TAM in proceedings against TVTC in Saudi Arabia and Dr. Adli A. Hammad.
46. In the case of the Foundation, Dr. Fahd Al Kodair gave a statement, to which the learned trial judge referred in his judgment. However, this witness was not, in fact, called to give oral evidence. Dr. Al Mobarak Al Tami, the Director General for private training of TVTC, provided a witness statement and he gave oral evidence and was cross-examined on days 3 and 4 of the trial. However, the learned trial judge mistakenly stated that Dr. Al Tami’s witness statement had been withdrawn. In his judgment, he referred to the evidence of Dr. Fahd Al Khodair. The Foundation complains that, in these circumstances, the evidence of an important witness was not considered. The effect of this admitted error will need to be considered later.
47. The learned trial judge considered the Statute of TVTC. He preferred the evidence called by the Dubai company to the effect that TVTC’s authority is restricted to private training centres. He accepted that TAM was not engaged in training and was not, therefore under the jurisdiction of TVTC. Basically, TVTC licenses training centres, but the function of TAM (as licensee of the Dubai company) is to provide course work, skill cards and certification, not to provide the training. Clarke J concluded that it was “not unlawful……to operate the ICDL programme in Saudi Arabia without TVTC consent per se.” Although, as a matter of practice, the absence of consent from TVTC was a matter of significance as TAM would not be able to operate in the private training sector, he did not think that “that type of difficulty is the sort of necessary licence, permit or consent which is spoken of in Clause 14.1.”
48. Hence, the “the cure notice sought to have remedied a matter which did not require to be remedied.” Thus, the termination of the licence agreement was not valid.
Clarke J on issue no. 2:
49. Although it followed from his conclusion on the first issue that the licence agreement had not been validly determined, the learned trial judge proceeded to consider the second question, namely whether the Foundation was entitled under its terms to terminate it in part only. He held that the contract was not severable by reference to the separate territories to which it applied. The performance criteria, for which it provides, are specified, as a matter of contract, across the entire licensed region. The “default position,” in his view was that the partial termination of a contract is not valid.
50. He rejected the Foundation’s invocation of Clauses 26.2 and 26.3, which preserve the rights of a party to rely on terms of the agreement in the event of failure to rely on or waiver of a breach.
51. Those clauses, in the view of Clarke J [see part 7] did not “confer an express or an implied entitlement to partially terminate the Licence itself.” He explained them as follows:
“Those clauses are designed to preserve the rights of either party to enforce the contract even though the party concerned may earlier have either failed to enforce the relevant provision or have engaged in only a partial exercise of its entitlements under a relevant provision. Likewise, the clauses are intended to preserve the rights of the parties to further enforce the contract even where there has been an earlier waiver of breach or only partial exercise of an entitlement arising on a breach.”
52. Thus, if it did have an entitlement to terminate, the Foundation was required to terminate the entire licence. Consequently, the attempt by the Dubai company partially to terminate the Licence was not permitted and was unlawful.
Clarke J on issue no. 3:
53. This concerns the structure of Clause 16 and the manner in which the agreement may be terminated. That clause permitted the Foundation to terminate the agreement “forthwith,” inter alia when the Dubai company had been “in breach of any obligations under this Contract, and, where such breach is capable of remedy, fails to rectify the breach to the satisfaction of [the Foundation] within sixty (60) days of written notice by [the Foundation].” The Foundation had argued that the effect of this clause was that, at the end of the sixty-day notice period, when the breach has not been remedied, the agreement terminates automatically. Clarke J rejected this argument and held that, on the proper construction of the clause as whole, a second notice was required. The Foundation was required to take a second decision, following the sixty-day period, as to whether it was satisfied that the breach it had alleged had been remedied and, even if it had not, whether it, in fact, wished to bring the licence to an end or whether termination was appropriate in the circumstances then prevailing.
54. On the other hand, the learned trial judge held that the Foundation had, given notice of termination of the agreement by the letter written by A & L Goodbody, solicitors, on 19th August, 2010. That letter stated that the Dubai company had failed to remedy its breach of the agreement and that the agreement “has therefore terminated.” While acknowledging that, on his own interpretation of Clause 16, the agreement had not then terminated, he said that, if the letter had used the words, “is now terminated,” rather than “has now terminated,” there could have been no doubt but that the letter would have been effective to have terminated the agreement from that time. He held that the letter had “amounted to a notice of termination even if it mistakenly used language which implied that that termination had already taken place when it should have used language which suggested that the termination was to take place by the letter itself.”
Clarke J on issue no. 4:
55. This issue concerns what constitutes a “wilful act or gross negligence,” so as to enable the Foundation to rely on the limitation of liability provided by Clause 25. Clarke J commenced by listing fourteen instances of acts on the part of the Foundation alleged by the plaintiffs to come within this description. They were:
i. The decision to intervene in the negotiations in KSA by interposing between TAM and TVTC when it is said the Foundation was unqualified and unskilled to so do;
ii. The failure to get legal advice on the powers claimed by TVTC and the acceptance of the TVTC representation as to their powers without analysis or expert assistance, notwithstanding:
(a) the fact that Dr. Saleh is not a lawyer;
(b) that TVTC had a clear interest and as such a conflict of interest in the matter; and
(c) that the plaintiffs had explicitly warned of the aggressive position that TVTC were taking with them;
iii. The failure to revisit the legal issue when the Foundation’s request for an indemnity from TVTC was ignored;
iv. The failure to revisit the issue when it transpired that TVTC relied in KSA on the purported termination by the Foundation rather than on any alleged absence of a licence on the part of TAM.
v. The decision to go to meet Dr. Saleh alone despite the clear warnings that had been given by Mr. Al Bawardi.
vi. The act of offering the Licence to TVTC when there was still a year to run on the original agreement with the Dubai company. This act was also said to serve to remove any possibility of rectification as between the parties.
vii. The agreement to meet alone at Dr. Saleh’s request.
viii. Proposing, on foot of representations by TVTC following an eight hour meeting, a tripartite agreement which involved the Dubai company losing the Licence.
ix. The alleged breach of the confidentiality clause in the Licence through communicating the substance of the Cure Notice of the 23rd February to Dr. Saleh a short time after sending it to the Dubai company.
x. Agreeing to TVTC’s ultimatum to produce a road map within 24 hours dealing with the future plan for the Dubai Company in KSA.
xi. The actual service of the cure notice on the 23rd February combined with the requirement directing the plaintiffs to stop all operations at once.
xii. The asserted destruction of any ability under the Agreement to avail of the 60 day period in which to fix the problem by the communication of the Cure Notice (to TVTC).
xiii. The facilitation of the negative campaign by TVTC through the communication of both the cure notice and the purported termination.
xiv. The failure to pass on the third party inquiries as required under the Licence.
56. The learned trial judge cited authority on the meaning, respectively, of “wilful act” and “gross negligence.” On the former, he referred to authorities cited on behalf of the plaintiffs. He quoted, in particular, the dictum of Bowen L.J. in Re Young and Hartson [1886] 31 Ch D 168, pages 174-175, approved by Talbot L.J. in the case of Wheeler v. New Merton Board Mills, Limited [1933] 2 K.B. 669, at 677 and that of Lord Goddard C.J. in Lomas v. Peek [1947] 2 All E.R. 574, at 575. These statements suggest that a wilful act is committed when a person knowingly and intentionally commits it. There is no connotation of blame. The learned trial judge noted the submission of the Foundation to the effect that these dicta are overbroad and are not in line with the intention of Clause 25. The Foundation submitted that, for the purposes of the limitation of liability, an “act” must mean an unlawful act, either a breach of contract or a tort, and, secondly, that the unlawful act must have been committed in full knowledge that it was unlawful.
57. The learned trial judge did not express an opinion on these conflicting contentions.
58. On the question of gross negligence, the learned judge cited Austin v. Manchester, Sheffield and Lincolnshire Railway Company (1850) 10 CB 454, at 474-475, Hilton v. Dibber (1842) 2 Q.B. 646 and Grill v. General Iron Screw Collier Company (1866) L.R. 1 C.P. 600 at 612, where, Willes J said that “gross negligence is ordinary negligence with a vituperative epithet…” He also cited a more recent authority cited on behalf of the Foundation, namely Red Sea Tankers Limited v. Papachristidis (The Hellespont Ardent) [1997] 2 Lloyd’s L. Rep.547.
59. The learned trial judge emphasised the fact that the term was here being used in a commercial contract. It followed, in his view, that whether it was a term of art used in any particular area of law might not be particularly significant. The words had to be construed by reference to their text but in their context. He concluded that the term “gross negligence” meant a degree of negligence involving a breach of the relevant duty of care by a significant margin. Business efficacy had to be given to the clause. Thus, in order for the exclusion clause to be ineffective, it was necessary to find that any breach of contract established resulted from a significant degree of carelessness by the Foundation.
60. He then turned to apply those principles to the facts of the case. He recognised that the Foundation had a legitimate interest in maintaining the position of the programme in KSA. While there could be criticism of Mr. O’Sullivan in relation to his decision to go to that country, it was a matter of judgement as to how the serious problems facing the parties in that jurisdiction should be handled. He could not see that the actions surrounding that decision came close to amounting to gross negligence. On the other hand, he went on to hold that what happened next was in a different category. The learned trial judge found that the Foundation had been guilty of gross negligence in the following terms:
61. For those reasons, the learned trial judge held that the limitation of liability provided by Clause 25 did not apply. Hence, the Dubai company was “entitled to whatever damages properly arise from the breach of contract” committed by the Foundation.
Consideration of the appeal
62. The Foundation was found to have wrongfully terminated the licence agreement for two reasons. Firstly, the “cure notice” was given on an incorrect basis that the Dubai company needed a licence or permission to provide its services in KSA. Secondly, the notice was incorrectly expressed to relate to only part of the territories designated by the agreement: such severance was not provided for; the agreement could be terminated in its entirety or not at all.
63. The learned trial judge rejected a third complaint, namely that the Foundation had not properly given the notice of termination required, even where a valid cure notice has been given. He held that a statement that the agreement had been terminated was sufficient. The Dubai company argues that the learned judge erred in this respect. It has not served a cross-appeal or notice to vary. The Foundation objects to it being allowed to argue this point.
Principles on Interpretation of Contract
64. The learned trial judge stated that the “rules of construction [of a contract] under Irish law are now to a large extent settled.” He referred to the judgment which Geoghegan J delivered on behalf of this Court in Analog Devices BV v. Zurich Insurance Company [2005] 1 IR 274 and the approbation there given to a passage from the speech of Lord Hoffman in the House of Lords in Investors Compensation Scheme v. West Bromich Building Society [1998] 1 WLR 896. He also referred to a well-known dictum of Lord Wilberforce in Reardon Smith Line Ltd v. Young Hansen-Tangen [1976] 3 All ER 570; [1976] 1 W.L.R. 989.
65. These various dicta are notable for their emphasis on the potential admissibility of background knowledge or what Lord Wilberforce famously described as the “matrix of fact.” Emphasis on those admissible aids to interpretation should not, however, mislead us into forgetting that a contract is, in the first instance, composed of the words used by the parties. It is of note that Geoghegan J in his judgment in Analog Devices BV v. Zurich Insurance Company [2005] 1 IR 274 cited a passage from the judgment of Griffin J in Rohan Construction v I.C.I. [1988] 273I.L.R.M., a case concerning an insurance policy, to the following effect:
“It is well settled that in construing the terms of a policy the cardinal rule is that the intention of the parties must prevail, but the intention is to be looked for on the face of the policy, including any documents incorporated therewith, in the words in which the parties have themselves chosen to express their meaning. The court must not speculate as to their intention, apart from their words, but may, if necessary, interpret the words by reference to the surrounding circumstances. The whole of the policy must be looked at, and not merely a particular clause.”
66. Geoghegan J went on to note that Griffin J had explained his reference to “surrounding circumstances” and that he had cited the following passage from the speech of Lord Wilberforce in Reardon Smith Line Ltd v. Young Hansen-Tangen, already cited, at page 996:
“When one speaks of the intention of the parties to the contract, one is speaking objectively – the parties cannot themselves give direct evidence of what their intention was – and what must be ascertained is what is to be taken as the intention which reasonable people would have had if placed in the situation of the parties. Similarly, when one is speaking of aim, or object, or commercial purpose, one is speaking of what reasonable persons would have had I mind in the situation of the parties….What the court must do must be to place itself in thought in the same factual matrix as that in which the parties were.”
67. I join with O’Donnell J in his approbation of the statement of Lord Hoffman in Investors Compensation Scheme v. West Bromwich Building Society. It is 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 next mentioned, 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 grammar; 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 meaning 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 Ltd. v. Eagle Star Ass. Co. Ltd. [1997] AC 749.
(5) The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the commonsense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania S.A. v. Salen A.B. [1985] A.C. 191, 201:-
‘If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense’.”
68. This passage, particularly paragraph 4, should not be misunderstood as advocating a loose and unpredictable path to interpretation. A court will always commence with an examination of the words used in the contract. Moreover, words will, as Lord Hoffman emphasises, normally be interpreted in accordance with their ‘natural and ordinary meaning....’ Business people will be assumed to know what they are doing and will normally be bound by what they have signed. The exercise is to be conducted objectively. The parties are not permitted to give evidence of their subjective intentions or of the negotiations leading to the conclusion of the contract. Keane J, as he then was, summarised the law briefly but comprehensively in his still unreported judgment in the High Court in Lac Minerals Ltd. v Chevron Mineral Corporation (High Court, unreported 6th August 1993).
69. Evidence of the surrounding circumstances, but not of subjective intentions, may be admitted to explain the subject-matter and even what particular words used should be understood as referring to. Such evidence will not normally be allowed to alter the plain meaning of words. In truth, there is no real issue in the present case concerning background or surrounding circumstances. Clarke J construed the agreement, particularly Clauses 14 and 25, by reference to its terms and the context of the entire agreement.
70. However, the Dubai company relies, both in respect of Clause 14 and Clause 25 on the contra proferentem rule. It is submitted that the agreement was prepared by and emanated from the Foundation and that, if there is any ambiguity, in accordance with that rule, it must be construed against it, using the Latin maxim, “against the party proferring it.” It cites the judgment of McCarthy J in Brady v. Irish National Insurance Co. Ltd. [1986] IR 698 at page 720.
71. Brady v Irish National Insurance Co. Ltd., already cited, concerned the interpretation of a special warranty in a marine insurance policy. Finlay C.J., who delivered the majority judgment, with which Walsh, Hederman and McCarthy JJ agreed, held, at page 715, that the warranty should be interpreted in accordance with the “principle which would be applicable to the interpretation of a contract proffered by one person to another.” It was to be “interpreted against the insurer...” McCarthy J, at page 720, said that “a contract issuing from one party to another must be construed against him, if ambiguity there be.”
72. As it happens, Analog Devices BV v. Zurich Insurance Company, already cited, is also an important authority on this point. Although the case concerned a policy of insurance, Geoghegan J referred at page 282 of his judgment to the general principle. He cited Clark on Contract Law (4th ed. Round Hall Sweet & Maxwell, Dublin, 1998) at p. 149 for the proposition that:
“If the exempting provision is ambiguous and capable of more than one interpretation then the courts will read the clause against the party seeking o rely on it.”
73. To the extent, therefore, that, in this case, there is any ambiguity in the relevant clauses of the agreement, any lack of clarity in their meaning, interpretation contra proferentem will lead to adoption of the meaning most favourable to the licensee, in this case the Dubai company.
74. The Dubai company, in addition, submits that, the party seeking to terminate an agreement, in accordance with its terms, must prove the existence of the facts which justify the exercise of the alleged right to terminate.(Chitty on Contracts, 30th Ed., (Sweet and Maxwell Ltd., 2008), at page 1476). This is not the same as the contra proferentem rule, which concerns the meaning of terms. It means that there must be precise observance of any conditions or procedures governing termination of the agreement.
The First Issue
75. The issue is framed as follows:
Whether the High Court erred in finding that the Plaintiffs did not breach Clause 14.1 of the Licence Agreement, the core issues in dispute in this regard being:
-whether the Second Plaintiff provided training in the Kingdom of Saudi Arabia (“KSA”);
-whether a licence, permission or consent is required from TVTC which is necessary for the Plaintiffs to carry on their business in KSA.
Clause 28.1 of the agreement provides that it is to be governed by and interpreted “in accordance with the laws of Ireland…”
76. The answer to the first part of this issue depends, therefore, on the interpretation as a matter of Irish law of Clause 14.1. The Foundation says that the learned trial judge erred in holding that the obligation of the licensee to “obtain…all licences, permits and consents necessary for it to carry on its business in the Designated Territory” relates strictly to such licences, permits and consents as are required to make it lawful to carry on the business in that territory, namely KSA. Clarke J held that the clause was “concerned with matters which are required in order that the operation be lawful, rather than commercially successful.” Although there was no doubting the capacity of TVTC to make it extremely difficult in fact for TAM, as licensee of the Dubai company to provide the programme in KSA, that was not, he held, the correct test.
77. The Foundation submits that this is an unduly narrow view of the scope of the obligation. The Foundation takes particular issue with the statement of the learned trial judge that the licences, permits or consents mentioned in Clause 14.1 are such that their absence “would render the operation of the programme in Saudi Arabia unlawful.” It seeks to draw a distinction between the “operation of the programme” and the carrying on by the licensee of its business, which, it says, is the subject-matter of the clause. The clause could mean either “necessary” in practice or “necessary” in law. It does not say “necessary in law.” The clause relates, it is argued, to the promoting of the ECDL concept and that, if in fact the consent of TVTC was not forthcoming for 68% of the market, it could not be said that the Dubai company had all necessary consents.
78. In making these submissions, the Foundation submits that the Court is entitled to have regard to the nature of the business contemplated in accordance with its decision in Analog Devices BV v. Zurich Insurance Company, already cited, and cites in particular the following sentence from the speech of Lord Hoffman as cited by Clarke J, namely:
“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.”
79. Counsel for the plaintiffs, supporting the reasoning of Clarke J, described this proposed interpretation as strained and unsustainable. Clause 14 refers to legal requirements, things necessary to make the carrying on of the business lawful. They submit that, being a document emanating from and prepared by the Foundation, the agreement must be construed against it, if there is any ambiguity, in accordance with the contra proferentem rule, which I have discussed above.
80. In my view, Clarke J was correct in his interpretation of Clause 14. I am satisfied that the respondents are correct in their reliance on the contra proferentem rule. I did not understand the Foundation to dispute the applicability of the rule. The agreement was a form of licence agreement emanating from and prepared by the Foundation.
81. I can discern no meaningful distinction between the “operation of the programme,” to which the learned trial judge referred and the carrying on of the business of the licensee. Whatever distinction there might be could not, in my view, affect the interpretation of the contractual requirement that the licensee be in possession of the necessary “licences, permits and consents.” By virtue of Clause 2 of the agreement, the Foundation granted to the Dubai company “a sole operating non-transferable right and licence personal to the licensee to use in the Designated Territory the ECDL Concept……….solely for the purposes set out in this Contract.” The operation of the licence is the only business of the licensee for the purposes of Clause 14. There could not be any other. For the purposes of Lord Hoffman’s reference to “all the background knowledge which would reasonably have been available to the parties…,” an objective observer would know that the purpose of the agreement was precisely to enable the plaintiffs to operate the licence in KSA and that the agreement itself conferred on the Dubai company the licence of the Foundation to use it. After that, the words used by the parties should be interpreted objectively in accordance with their ordinary and natural agreement. The entire agreement should be considered.
82. The first sentence of Clause 14.1 provides the context and sets the scene for the interpretation of the second. It provides that “the exercise of the licence…………… is subject to all applicable laws, enactments, regulations and other similar instruments in the Designated Territory.” Further emphasis is given by the provision in parentheses that this includes, “without limitation, all applicable local laws relating to advertising, broadcasting, health and safety and telecommunications…” The words, “licences, permits and consents,” in this context strongly suggest the obligation imposed on the licensee relates to legal requirements. The inclusion of a further reference to the “Designated Territory” in the second sentence shows that these are matters which are specifically required in that territory. Finally, the “licences, permits and consents,” are described as being such as are “necessary for [the licensee] to carry on its business” in that territory.
83. This part of the dispute brings up again the suggested distinction between what is strictly necessary as a matter of law (in KSA) and what is necessary in practice simply because of the opposition of TVTC and its ability to place obstacles in the way of the plaintiffs. To the extent that the words are open to either interpretation, as I understood counsel for the Foundation to accept in argument, they must be given the interpretation most favourable to the Dubai company.
84. I am satisfied that Clarke J was correct in holding that the second sentence of Clause 14.1 is “concerned with matters which are required in order that the operation be lawful, rather than commercially successful.”
85. That determines the first part of the first agreed issue. It remains to be considered whether, as a matter of the law of KSA, it was necessary for the Dubai company or, to be more precise, TAM, as its licensee, to have the licence or consent of TVTC to operate the licence in KSA. This was the most difficult issue which the learned trial judge had to determine for several reasons. The fact that most of the evidence, both written and oral had to be translated from the Arabic, presented its own difficulties. The English versions are not always completely clear. The learned trial judge quite legitimately referred to the fact that he was placed in the unusual situation of determining a dispute concerning the respective rights and obligations of two Saudi bodies, one of them private, TAM, and the other public, TVTC, under the law of KSA. Quite rightly, he expressed the view that it would have been preferable for those issues to be determined by the appropriate Saudi court or tribunal.
86. However, the dispute before the High Court was between the plaintiffs and an Irish body. It concerned, in the first instance, a question of interpretation of an Irish contract. Once the interpretation of that contract was determined in favour of the Dubai company, and I have held that the learned trial judge correctly did so, it became inevitable that the Irish court would have to determine the consequent issue of Saudi law.
87. The questions concerning the jurisdiction and powers of TVTC under Saudi law fell into two parts. Firstly, there was a dispute concerning whether TVTC had any licensing power insofar as training in the Saudi public sector was concerned. Secondly, the court had to decide whether TAM was required to have a licence from TVTC for its operations in the private sector. It was common case that TAM did not operate the training centres in which the ECDL was provided. It provided the three elements of skill cards, testing base (or examination questions) and the award of certificates. TVTC claimed that these matters required to be licensed by it.
88. The most relevant parts of the TVTC statute are as follows (in English translation):
Article 1:
The following word and phrases, wherever mentioned in this Statute, shall have the meanings assigned to them, unless the context requires otherwise:
[…]
Training Units: Premises or facilities of different organizational forms, names and locations where the Corporation provides training.
Training: Non-academic programmes of different forms, levels and durations aimed at providing trainees with applied technical or vocational skills and knowledge.”
Article 3
The Corporation aims at developing national human resources through training in order to participate in meeting labor market demand for qualified manpower. To this end, it may, amongst other things, undertake the following:
[…]
4. Licensing, overseeing and setting technical standards for private sector training.
5. Entering into strategic partnerships with training institutions in both private and public sectors; to manage and operate different training units.
[…]
Article 5
The Board [of Directors] shall be the highest authority of the Corporation and shall oversee the management and conduct of business thereof. The Board shall particularly have power to:
4. Approve regulations for training at training units, particularly those related to setting training hours, plans, durations, vacations as well as admission requirements, examinations and certificates.
5. Approve regulations for private sector training, particularly those related to technical standards.
[…]
7. Approve the establishment of training units in different provinces in the Kingdom, in accordance with national development plans.”
89. The High Court received evidence of Saudi law, partly in the form of written statements or opinions and partly in the form of oral evidence. The first expert witness for the plaintiffs was Dr. Waleed Nasser Al-Nuwaiser, a Saudi Arabian lawyer, who has represented TAM in proceedings against TVTC in KSA . The second was Dr. Adli A. Hammad, who holds degrees in law from the University of Cairo and Southern Methodist University, Dallas, Texas, U.S.A. and the International Islamic University, Kuala Lumpur, Malaysia.
90. Dr. Waleed, firstly, gave evidence that “TVTC’s authority is restricted to private training centers.” He said:
“Training centers that are not private or that are under the authority of other governmental bodies (such as health training centers and centers under the umbrella of the Ministry of Higher Education) do not fall within the jurisdiction of TVTC.”
91. Dr. Waleed supported his evidence on this point by reference to a letter written on 21st February 2011 by the Saudi Ministry of Education. The learned trial judge pointed out that this letter was sent in circumstances where the plaintiffs had queried TVTC’s authority following a request by TVTC that all universities in KSA cease their use of the Programme. The letter stated:
“Reference to the letter submitted by the Manager of Knowledge Technology for Advanced Education Co. Ltd. No. 27/12/G. dated 27/02/1432H., which includes the suspension of the ICDL program at Universities by the Technical and Vocational Training Corporation.
Whereas the abovementioned program is considered part of the educational courses as a preparatory course, which is not subject to the training rules and conditions under the umbrella of the Technical and Vocational Training Corporation, and for the need of the universities for such comprehensive computer program.
Therefore, we have no objection to resume the aforesaid program in light of its scientific value as a global program.”
92. The evidence of Dr. Adli A. Hammad was that TVTC has jurisdiction over private training centres providing vocational and technical training. He did not deal explicitly with the authority of TVTC over the public sector.
93. The evidence of Dr. Waleed, with regard to the private sector was that, since, according to his instructions, TAM “does not provide training, nor does it operate as a training center, therefore, it is not under the jurisdiction of TVTC.” In his view, “under Saudi Arabian law, the only license required from [the Dubai company] Saudi Arabia to undertake its activities is the commercial registration issued by the Ministry of Commerce and Industry, which [TAM] Saudi Arabia has duly obtained.”
94. Presentation of the evidence called on behalf of the Foundation is less clear cut, in view of the admitted error made by the learned trial judge.
95. The learned trial judge firstly referred to the evidence, in fact the witness statement, of Dr. Fahd Al Kodair, the Director of the TVTC legal department. Dr. Al Kodair agreed that TAM does not operate training centres. However, his view was that “the provision of computer skills for the purpose of obtaining an ICDL certificate is considered training activities because of its link to a certificate.” Therefore, he said, TAM “comes under the authority of TVTC with regards to licensing, supervising and settling the appropriate technical standards.” Dr. Al Kodair took issue with the letter from the Ministry of Higher Education on two grounds. As summarised in the High Court judgment:
“First, he suggested that the exemption referenced in the letter cannot be considered a licence permitting TAM to operate in Saudi Arabia as the Ministry for Higher Education is not a competent body for the issuance of such licences; second, he drew attention to the statement that the ICDL Programme was to be considered a preparatory subject in education which he asserted was incorrect.”
96. The second expert tendered on behalf of the Foundation was Dr. Majed M. Garoub, a Saudi Arabian lawyer with his own law firm and a graduate in business law of the University of Belford. U.S.A. and of the King Abdul Aziz University, Jeddah, Saudi Arabia. His opinion was that:
• “no public or private entity may hold training programs accompanied by the issuance of certificates unless these programs are pre-licensed by TVTC;”
• no entity in KSA may provide training programs, and/or issue training certificates unless licensed for such activity by TVTC;
• TAM’s articles of association mention training activity, which is “proof that [it’s] training activity does fall under the scope of TVTC’s jurisdiction and thus it is required to obtain a licence from TVTC;”
• The laws and regulations of KSA “require obtaining licences for exercising training and certificate granting activities.”
98. The learned trial judge mistakenly stated that the statement of evidence of Dr. Mobarak M.Tami, had been withdrawn and, thus, that his statement did not form part of the evidence which he had to consider. In order to consider this problem, it is necessary to summarise the evidence of Dr. Al Tami, both written and oral. In his written opinion, Dr. Al Tami, following an account of his personal career and qualifications, referred to Article 3 of the TVTC statute already cited. He said that TVTC was “responsible for the licensing, supervision and setting of all technical standards for all private training centres in Saudi Arabia.” This meant that any private training centre looking to establish in KSA must:
97. Thus, he said, “in order for the ICDL certification programme to be offered at any private training centre in the KSA, the programme must first be approved by TVTC.” Dr. Al Tami agreed with Dr. Waleed that TAM does not operate a training centre. However, he said that its activities came within the technical and vocational sector, over which TVTC has authority. Consequently, he was of the view that TAM, “as a private company awarding ICDL certificates to the public in Saudi Arabia …cannot do so without the prior approval of TVTC…………”
98. Dr. Al Tami also addressed the issue of TVTC’s powers in relation to the public sector. He agreed that TVTC has no jurisdiction or authority to regulate the university sector. He says that the Letter from the Ministry of Higher Education is “merely a recommendation,” but that it did not follow that TAM could award ICDL certificates in this sector without TVTC’s approval. That was “because the Ministry….is not a body that can licence training or issue certificates in the private sector……………”
99. Dr. Al Tami gave evidence before the High Court and was subjected to rigorous cross-examination particularly directed to the question whether TVTC, under the terms of its statute, had power of certification as distinct from the licensing of training centres. He maintained that Article 3 of the statute gave power to licence certification, although he agreed that the word does not appear in that provision. He also confirmed that he agreed with the draft précis of the oral evidence of Dr. Al Kodair.
100. The Foundation strongly argues that the error of the learned trial judge in referring to the evidence of Dr. Al Kodair, who was not called as a witness, and in mistakenly stating that the statement of Dr. Al Tami had been withdrawn was significant and submits that the Court should order a retrial. The evidence of that witness warranted particular weight being given to it. He held the very senior position of Director General of the Private Training Directorate and had been employed by TVTC since 1986. Although he held no legal qualification, he was giving evidence from a position of experience and expertise. He was entitled to give his opinion as to the proper interpretation of the TVTC Statute under which he worked, and as such his opinion was entitled to particular weight.
101. The respondents submit that, in effect, the learned trial judge confused the evidence of Dr Al Kodair and Dr Al Tami, whose evidence was very similar, and that each confirmed the evidence of the other. The Foundation could not be prejudiced, in view of the fact that Dr Al Kodair is a practising lawyer. Dr. Garoub was the Foundation’s independent expert. He addressed the issues in dispute, especially the powers of TVTC. His evidence was fully considered by the High Court and was more relevant.
102. I am satisfied that the ground of appeal related to the confusion of the evidence should be rejected. This was not, of course, a trial with a jury. In that case, Order 58, rule 7 of the Rules of the Superior Courts provides that, in the event of “the improper admission or rejection of evidence,” a new trial is not to be ordered unless, “in the opinion of the Supreme Court some substantial wrong or miscarriage has been thereby caused in the trial.” Similarly, I do not think a retrial should be ordered by reason of an error of the type which has occurred here, unless it has led to a substantial error in the conclusion of the trial judge.
103. The learned trial judge first dealt with the issue of whether TVTC has authority over training in the public sector. He noted that it is not given authority over all training, but only over private sector training. Clearly, he was impressed by the letter from the Ministry of Higher Education: if the evidence by the TVTC experts was correct, then that letter must, he said, clearly be wrong. The approach taken in the letter was, however, consistent with the views of the experts called on behalf of the plaintiffs.
104. Turning to what he called the “real question,” namely, “who is providing the training,” he understood that TAM did not provide “the hands on training.” Ultimately, “on the balance of the evidence” he found in favour of the evidence of the law of KSA called on behalf of the plaintiffs. He expressed his conclusion as follows:
“TAM does not provide training as such. The training is provided by the bodies, whether public or private, who deal directly with the students. Much training is, therefore, public and outside the scope of TVTC’s control. It is not unlawful, therefore, to operate the ICDL programme in Saudi Arabia without TVTC consent per se.”
105. I do not think this conclusion is invalidated by the confusion concerning the evidence of Dr Al Tami. I say this for the following reasons. Dr. Al Tami was not a qualified lawyer. He was a senior official in the body most directly involved in the dispute with TAM in KSA. He was not, therefore, an independent expert. The Foundation relies on a passage from Cheshire, North and Fawsett, Private International Law, 14th Ed., (Oxford University Press, 2008) at page 115, which reads as follows:
“The question as to who is a sufficient expert…has not been satisfactorily resolved by the English decisions. Though no doubt the court has a discretion in the matter, the general principle is that no person is a competent witness in the particular legal system in question, or unless he occupies a position or follows calling in which he must necessarily acquire a practical working knowledge of the foreign law.”
106. Although it appears that the plaintiffs did not in fact object to the admissibility of the evidence of Dr. Al Tami, there must be a significant doubt as to whether he was a sufficiently qualified expert in the law of KSA.
107. Furthermore, Dr. Al Tami expressed his complete agreement with the witness statement of Dr. Al Kodair. The Foundation chose not to call Dr. Al Kodair, not because his evidence was unfavourable, but because it considered it superfluous. The key point in Dr. Al Kodair’s statement was in complete agreement with that of Dr. Al Tami, namely that the provision of computer skills for the purpose of providing an ICDL certificate was considered to be “training activity” because of its link to the certificate. This was exactly the burthen of Dr. Al Tami’s evidence. It was also the evidence of Dr. Garoub, which the learned trial judge quoted. There can be no doubt, therefore, that the learned trial judge was fully conscious of the arguments of the Foundation to the effect that, although TAM was not providing the training in private training centres in KSA, its provision of the three key elements, skills cards, tests and certificates, to those in fact operating them amounted to the provision of training.
108. I cannot help observing that Dr. Al Tami, while relying on Article 3 of the TVTC statute as the source of its power, was unable to point to any provision of that law referring in fact to certification.
109. I am satisfied that the learned trial judge was entitled to come to the conclusion which he did, namely that it was not unlawful for the Dubai company to operate the programme in KSA without a licence from TVTC. Consequently, the Dubai company was not in breach of Clause 14.1 the licence agreement.
110. That conclusion suffices to determine the first general issue in the case. Strictly speaking, it is not necessary to determine the subsidiary grounds advanced for the invalidity of the termination of the agreement by the Foundation. It seems to me, however, that these issues may be relevant to the fourth issue of the limitation on limitation of the liability of the Foundation. Thus, it is desirable that they be considered.
The second issue
111. This is whether the Foundation was entitled under the terms of the agreement to terminate it only in respect of its operation in KSA and to allow it to continue to operate in respect of the other territories.
112. The right conferred on the Foundation by Clause 16, where its conditions are satisfied, are that it may “terminate this Contract forthwith, by giving written notice to the Licensee…” It is important to note that this is a right, where the circumstances justify that act, to terminate the contract. There is no right to terminate part of the contract or to terminate the contract in part. The ordinary and natural meaning of the words used suggests that the power is to terminate the entire contract and not any particular part. That conclusion is fortified by the contra proferentem rule. It is difficult to avoid the conclusion that partial termination is not permissible. Clarke J referred to a learned article (Carter, “Partial Termination of Contracts” (2008) 24 Journal of Contract Law 1). He observed that the conclusion of academic writing suggested that partial termination is the exception rather than the rule and that it will usually only take place as an exercise of an express right. Certain exceptions were recognised. One of these was the case of a severable part of a severable contract, upon which the Foundation relied.
113. The Foundation claimed that partial termination was in ease of the plaintiffs. It relied on the fact that the fact that the licensed territories could be changed during the life of the agreement, but especially on Clauses 26.2 and 26.3 of the agreement. Those clauses provide:
2. “The failure by either party to exercise or enforce any rights under this Contract shall not be deemed to be a waiver of any such rights, nor shall any single or partial exercise of any right, power or privilege, or further exercise thereof, operate so as to bar the exercise or enforcement thereof at any later time.
3. The waiver by either party of any breach of any of the terms of this Contract by the other shall not be deemed to be a waiver of any such rights, nor shall any single or partial exercise of any right, power or privilege, or further exercise thereof, operate so as to bar the exercise or enforcement thereof at any later time.”
114. It was claimed that these clauses had the effect of negating any implied obligation on the part the Foundation to exercise its right to terminate fully rather than partially. The learned trial judge was quite right, in my view, to reject the Foundation’s invocation of these articles in support of a claimed right to terminate the agreement in part only. They simply do not address or relate to the right of termination.
115. The right conferred by Clause 16 is to “terminate this Contract, [not any part of it] forthwith.” It is not open to the Court simply by a process of interpretation to interpolate a provision for partial termination.
116. Therefore, in my view, the notice of termination given by the Foundation was invalid on this additional ground.
117. This issue is whether, assuming all the circumstances to be present for the valid termination of the agreement and a valid notice of termination to have been served, a second notice actually terminating the agreement is required and whether such a notice was validly given in the present case.
118. The procedural position with respect to this issue is confused. The learned trial judge decided, in favour of the plaintiffs, that the agreement had not terminated automatically after the end of the sixty-day period given by the cure notice: a second notice was necessary. On the other hand, he decided, in favour of the Foundation, that such a notice had been given in the form of the letter of 19th August 2010 from the Foundation’s solicitors asserting that the Agreement had already terminated by reason of its alleged failure to remedy its alleged breach and the Agreement.
119. In these circumstances, the Foundation, unsurprisingly, has not advanced any ground of appeal relating to the point. This issue does not appear to me to be properly before the Court, as a distinct ground of appeal.
120. Since I have concluded that the learned trial judge was correct to hold the agreement had not been lawfully terminated, it is, in any event, unnecessary to address this issue and I do not do so.
The fourth issue: Clause 25; limitation of liability
121. The Foundation seeks to avail of Clause 25 to limit its liability to “10 per cent of the total amounts paid to” it by the Dubai company “or €50,000.00, whichever is the lesser amount.” That clause is, however, subject to the exception that it does not apply in case of a cause of action is “caused by a wilful act or gross negligence…”
122. Clarke J, found on the facts that the Foundation had been guilty of “gross negligence,” as he interpreted the expression. That was sufficient to defeat the Foundation’s attempt to limit its liability. Although he referred to a number of authorities cited on behalf of the Dubai company regarding the meaning of “wilful act,” and to the contrary arguments of the Foundation, he did not rule separately on the meaning of that expression.
123. The Dubai company, correctly, submits that Clause 26 is to be interpreted in accordance with the contra proferentem rule, which has the consequence that any ambiguous word or expression will be construed against the Foundation. It does not mean that words will lose their ordinary or natural meaning. Two points seem to me potentially to arise. Firstly, the exception applies in the case of either “wilful act” or “gross negligence.” If the plaintiff or claimant is able to establish either, he will be able to defeat the limitation. Secondly, there is debate concerning the meaning of “gross negligence.” It does not appear to me that the contra proferentem rule necessarily means that such an expression should have a meaning assigned to it, which differs from what it should have in a commercial contract.
124. Firstly, I will deal with the question of “wilful act.” The Foundation refers to the omission by the learned trial judge to make an ultimate finding on this question and interprets the decision as meaning that this was not a case of “any deliberate wrong having been done.” The Dubai company relies on “wilful act,” as an alternative basis for disapplying the cap on damages.
125. Re Young and Hartson [1886] L.R. 31 Ch D 168 was a case of a vendor and purchaser summons. The question was whether the purchaser had to pay interest for delay on payment of the purchase money, which he would have to do if the delay was “from any cause whatever other than wilful default of the vendor.” The vendor had gone abroad on holiday two days before the time fixed for completion. Bowen L.J. remarked that the term “wilful default” was in common use in such contracts, before stating at pages 174-175:
“Default is a purely relative term, just like negligence. It means nothing more, nothing less, than not doing what is reasonable in the circumstances……..The other word which it is sought to define is ‘wilful.’ That is a word of familiar use in every branch of law, and although in some branches of the law it may have a special meaning, it generally, as used in courts of law, implies nothing blameable, but merely that the person of whose action or default the expression is used, is a free agent, and that what has been done arises from the spontaneous action of his will. It amounts to nothing more than this, that he knows what he is doing, and intends to do what he is doing, and is a free agent.”
126. The case of Wheeler v. New Merton Board Mills, Limited [1933] 2 K.B. 669 concerned the word, “wilful act,” in s. 29 of the Workmen’s Compensation Act 1925. An injured workman could recover damages at common law and not be limited to his statutory remedy only of he could prove negligence (which the jury had not found) or “wilful act” of the employer. The injury was caused by a machine, which, in breach of the employer’s statutory duty, had been left unguarded. Talbot J thought that “the provision of a dangerous machine with the intention that it should be used by the company’s workmen……is more properly described as an act than negligence. He continued, in a passage, at page 677, in which he cited the dictum of Bowen L.J:
“Was it then a wilful act, and, if so, was it a wilful act of the company. ‘Wilful act’ is plain English, and I can entertain no doubt that the installing of this machine without guard or fence for use in the factory was a wilful act by some one. It was an act, and it was intentional. It is true that though ‘wilful’ and ‘intentional’ are synonymous […], ‘wilful’ is more commonly used in modern speech of bad conduct or actions than of good, though it does not necessarily connote blame […]”.
127. Talbot J explicitly rejected the contention that a “wilful act…must be confined to something done with intent to injure.”
128. It emerges from these authorities that it suffices for an act to be wilful that it is done deliberately. It is not necessary that it be committed with the intention to injure or that the person committing it knows that it is unlawful. Thus, the Foundation is incorrect when it states in its written submissions that the decision of the High Court not to make a finding of a wilful act was based on a view that there was no question of any deliberate wrong having been done. That is not the test. I will postpone expressing my concluded view on this until after I have deal with the question of “gross negligence.”
129. I turn then to the question of “gross negligence,” where the case-law is less clear. As has been seen, the learned trial judge interpreted the expression, when used in an agreement such as the present, as requiring to be interpreted as a term of a business contract and with a view to giving it business efficacy. He held that the term in the agreement required proof that the Foundation had been significantly careless in respect of the performance of its obligations. The Foundation submits that this test sets the threshold too low. The Dubai company submits, on the other hand, that it should suffice to show that the Foundation failed to exercise reasonable skill and care in the circumstances of this case and that it should not be necessary to show a significant degree of carelessness.
130. The learned trial judge referred to a body of case-law from the mid-nineteenth century onwards, some of it suggesting that the courts should not make any distinction between simple negligence and gross negligence. Most memorably, Lord Cranworth (later quoted by Willes J) remarked in Wilson v. Brett [1843] 11 M. & W. 113 that “gross negligence is ordinary negligence with a vituperative epithet ….”
131. I am not convinced that these cases should necessarily be read as excluding the potential existence of a distinction between negligence and gross negligence. The point of reference for the later cases is Beal v. South Devon Railway [1864] 3 H & C 337, a decision of the Court of Exchequer Chamber in 1864. The question concerned the reasonableness (under the Railways Traffic Act) of a condition of carriage imposed by a railway company. The condition was that the company would not be liable for loss or injury except in the case of “gross negligence or fraud.” The court held that it was reasonable. Crompton J stated, at page 562, that “in the case of a carrier or other agent holding himself out for the careful and skilful performance of a particular duty, gross negligence includes the want of that reasonable care, skill and expedition, which may properly be expected from persons holding themselves out and their servants.” He continued:
“The authorities are numerous, and the language of the judgments various, but for all practical purposes the rule may be stated to be that the failure to exercise reasonable care, skill and diligence is gross negligence. What is reasonable varies in the case of a gratuitous bailee and that of a bailee for hire. From the former is reasonably expected such care and diligence as persons ordinarily use in their own affairs, and such skill as he has. From the latter is reasonably expected care and diligence, such as are exercised in the ordinary and proper course of similar business, and such skill as he ought to have, namely, the skill usual and requisite in the business fro which he receives payment.”
At a later point, Crompton J noted that in “the case of actions against attorneys…the law only attaches liability in the case of gross negligence…”
132. In Grill v. General Iron Screw Collier Company (1866) L.R. 1 C.P. 600, one issue concerned whether a jury, in an action for negligence against a shipowner, had been misdirected because the judge (in fact, the Lord Chief Justice) “made no distinction …between gross and ordinary negligence.” Willes J cited the remark of Lord Cranworth, mentioned above and referred to Beal v. South Devon Railway already cited. At page 612, he then stated:
“Confusion has arisen from regarding negligence as a positive instead of a negative word. It is really the absence of such care as it was the duty of the defendant to use. A bailee is only bound to use the ordinary care of a man, and so the absence of it is called gross negligence. A person who undertakes to do some work for reward to an article must exercise the care of a skilled workman, and the absence of such care in him is negligence. Gross, therefore, is a word of description, and not a definition, and it would have been only introducing a source of confusion to use the expression gross negligence, instead of the equivalent, a want of due care and skill in navigating the vessel, which was used again and again by the Lord Chief Justice in his summing up.”
133. Although Beal v. South Devon Railway, already cited, concerned the validity of a condition of carriage, the dicta in both cases are concerned with the applicable standard of care in tort. Even then, they illustrate the fact that different standards may be applicable in different situations. It is interesting to note that one of the cases referred to by the respondents in their submissions, J. P. Morgan Chase v. Springwell [2008] EWHC 1793, Mrs Justice Gloster recalled precisely the distinction historically made in the case of the liability of bailees, a gratuitous bailee being liable only for gross negligence.
134. The context of the present case is not tort but contract. Where the parties have used the word “gross negligence,” the courts should endeavour to give it meaning. As Clarke J remarked, the difficulty of assigning a meaning to gross, as distinct from ordinary, negligence is compounded by the fact that the liability of the Foundation, which is in contemplation is in contract rather than tort. In my view, he was correct to decide that he should endeavour to give meaning to the term in a context where the parties had agreed to use it in the contract. The general law lays down the liability of parties in tort. Where the parties decide to regulate the relations between them by reference to a particular set of words, the courts should endeavour to give effect to their intentions.
135. A number of much more recent decisions of the English courts, at first instance, have applied principles of interpretation of contracts to exemption or limitation-of-liability clauses.
136. In Red Sea Tankers Limited v Papachristidis (The Ardent), already cited, Mance J (as he then was) dealt with a contract which was to be interpreted according to the law of the State of New York. Having considered the evidence regarding the law of that jurisdiction, he observed that “if the matter is viewed according to purely English principles of construction,...’gross’ negligence is clearly intended to represent something more fundamental than failure to exercise proper skill and/or care constituting negligence”...” He then expressed the view that:
“as a matter of ordinary language and general impression, the concept of gross negligence seems capable of embracing not only conduct undertaken with actual appreciation of the risks involved, but also serious disregard of or indifference to an obvious risk.”
137. Andrew Smith J followed the view of Mance J in Camarata Property Inc v Credit Suisse Securities [2011] 2 BCLC 54, a case concerning a clause purporting to limit liability of investment advisers to cases involving “gross negligence…fraud or wilful default….” Andrew Smith J noted that gross negligence had not been recognised in English law as a concept distinct from civil negligence. He went on to state, nonetheless, that:
“The relevant question…is not whether generally gross negligence is a familiar concept in English law, but the meaning of the expression in these paragraphs of the terms and conditions…”
138. I do not need to describe the particular clauses which were being interpreted in that case. It suffices to note that the learned judge saw that the agreement intended that there be a distinction between negligence and gross negligence, though he accepted that this was “one of degree and not of kind.”
139. I am persuaded that an agreement such as the present intentionally establishes a distinction between ordinary negligence and gross negligence. Any liability of the Foundation is to be limited in accordance with Clause 25 unless the plaintiff can show gross negligence.
140. It is less easy to define the difference between negligence and gross negligence. The plaintiff does not need to prove negligence at all to succeed in a claim based on breach of contract. He may recover damages subject to the limitation or cap. To go beyond that, he must show something more than breach of contract. The corollary of the introduction of the notion of negligence into the contract would appear to be that the Foundation accepts that it may be liable for negligence in and about the performance of its contractual obligations or the exercise of its contractual rights. For present purposes, the consequence is that the Foundation may be liable for gross negligence in and about the exercise of its right to terminate the agreement. Clarke J settled on “a degree of negligence where whatever duty of care may be involved has not been met by a significant margin.” At a later point he proposed that the circumstances in which the breach took place should be such that there was not merely in breach but that the defendant was significantly careless as to the performance of its obligations.
141. The difficult question is how to define the degree of fault. Some of the earlier dicta we have seen suggest that this is so difficult that no meaningful distinction can be made. Where the parties have used a term in a contract which affects their relations and, specifically the circumstances of the liability of one party to the other, the courts should make an effort to find a solution. Clarke J adopted the term “significant” or “significantly” as a type of quantitative yardstick and I cannot readily see a more appropriate measure. I do not see any reason to go further in assisting a defaulting party to limit what would otherwise have been its liability at law. It should be borne in mind that the plaintiff does not, as a matter of the general law, need to establish negligence at all in order to prove breach of contract, except in cases where the breach of contract alleged consists in breach of a duty of care. Thus, faced with Clause 25, the plaintiff must prove negligence and that the negligence amounted to a significant degree to a breach of that party’s duty to the other party under the contract.
142. In my view, therefore, Clause 25 allows the Foundation to limit its liability unless the Dubai company can prove that it has, to a significant extent, been negligent in and about the act of breach of contract which is alleged, namely termination of the agreement.
143. Based on that test, it is now necessary to consider the grounds on which the learned trial judge found, in favour of the Dubai company, that the Foundation had been guilty of gross negligence. He made the relevant finding at paragraph 8.11 of his judgment in the following terms:
“What happened next is, however, potentially in a different category. In effect, a deal was done with TVTC at a time when the legal relationship between the Foundation and the Dubai company remained in full force (the Cure Notice had not even been served). TVTC was kept very fully aware of the steps being taken by the Foundation. That action by the Foundation removed any possibility, in practise, of matters being resolved between TAM and TVTC. It seems to me that those actions also need to seen in the context of the fact that the Foundation was well aware, at the relevant time, that there was in substance a commercial dispute between the plaintiffs and TVTC in which TVTC was attempting to leverage additional payments arising out of the ICDL programme in Saudi Arabia. This latter point is also relevant to the situation which pertained when at least a credible basis was presented to the Foundation for the view that TVTC’s assertion as to the scope of its licensing entitlement was incorrect. The Foundation simply had an assertion by an interested party (albeit a governmental body) which that party was unwilling to back up by appropriate warranties or the like (despite being asked), placed against an at least credible view of Saudi law from an independent and reputable law firm.”
144. There appear to be four principal components of that finding:
1. That the Foundation, in effect, “did a deal” with TVTC at a time when the agreement between the Dubai company and the Foundation was still in full force and effect;
2. The Foundation kept TVTC fully informed of the steps it was taking in respect of its agreement with the Dubai company, which removed any realistic possibility of resolution of the dispute between TAM and TVTC;
3. A view which was at least credible was presented to the Foundation that TVTC’s view of its licensing powers was incorrect;
4. The Foundation accepted the assertion of TVTC, an interested party, against the view of an independent and reputable Saudi law firm.
145. The Foundation makes the following principal complaints about these findings. Firstly, it says that there was no evidence that “any concluded agreement was reached at the meeting of Mr. O’Sullivan of the defendant and Dr. Saleh of TVTC, when they met on 10th February 2010…” However, the learned trial judge did not find that there was a “concluded agreement.” Secondly, it is complained that the learned trial judge made no reference to certain evidence, said to be undisputed, that Mr Al Bawardi of the plaintiffs had been prepared, in negotiations, to agree a complete restructuring of the arrangements with the defendant and TVTC, with the first plaintiff surrendering its contract with the defendant and entering into an arrangement whereby TVTC would take the licence from the defendant. Thirdly, it is claimed that there was no evidence that TVTC was attempting to leverage additional payments out of the ICDL program in KSA. Fourthly, the Foundation deals in some detail with the finding that the Foundation had placed reliance on TVTC’s own statements, as an interested party, of its legal powers. Some of the points made are that TAM did not itself challenge TVTC’s statements, though, under Clause 14.1 of the agreement that was its sole responsibility and that the opinion obtained by the plaintiffs from a Saudi Arabian law firm was obtained on the incorrect basis that TAM was not providing training.
146. In order to assess the correctness of the findings of the learned trial judge regarding gross negligence, I propose to summarise, at the risk of some repetition, the basic facts regarding the four essential points made by the learned trial judge.
147. The narrative really commences at the end of 2009 or the beginning of 2010. It is important to emphasise that, at that time, the agreement was still in force. The Dubai company was still the licensee of the Foundation and TAM was its sub-licensee. Mr O’Sullivan acknowledged on 11th January that the progress of ICDL in Saudi Arabia had been “very positive over the past two years” and in evidence said that the plaintiffs were “well regarded, highly regarded.”
148. As early as 10th January, Mr. Al Bawardi informed the Foundation in some detail of the plaintiffs’ then current difficulties with TVTC, which were clearly very serious. He stated that, while TVTC was an important organisation, it had overstated a number of points. Specifically, he said that TVTC’s role was confined to its own centres and to private centres, which became, of course, the nub of the dispute. At this time, Mr. Al Bawardi warned Mr. O’Sullivan of the risks of travelling to KSA to meet Dr. Saleh of TVTC. He warned that he would be put under a lot of pressure and that TVTC wanted an “excuse to dump [the Dubai company].” Mr. O’Sullivan was naturally extremely concerned that the disputes which had led to such a sharp deterioration in relations between TAM and TVTC might jeopardise the entire programme in KSA. In all these circumstances, the learned trial judge found that the decision of Mr O’Sullivan to travel to KSA did not even com close to amounting to gross negligence.
149. In the period immediately before Mr. O’Sullivan’s trip to KSA, he received a number of emails from Dr. Saleh, expressed in extremely strong terms, alleging multiple breaches of contract by TAM, complaining of the performance of the company and saying that TVTC would not tolerate these breaches or “the unlawful operation of the company.” TVTC repeatedly stated that TAM had no licence from the KSA government to operate in the Kingdom. It sought direct contact with the Foundation “without other party’s involvement.”
150. However, it was what then happened which became material, specifically the finding that Mr. O’Sullivan had, in effect, “done a deal” with TVTC at a time when the legal relationship between the Foundation and the Dubai company “remained in full force...” I have already pointed out that the learned trial judge did not find that a concluded agreement was reached. The evidence justifying the finding of a deal is mainly contained in an email from Mr. O’Sullivan to Mr Al Bawardi of 10th February, the date of his meeting with Dr. Saleh. Mr O’Sullivan recorded that he had been informed of the unhappiness of TVTC with the performance of TAM and of its threat to formally withdraw their support from the Dubai company. He said that the Foundation could not have a situation where the Dubai company was not approved by TVTC. TVTC would continue, he said, only on the basis that its role and authority was recognised and that it was given “control over the programme.” Moreover, he said that they (TVTC) wanted to be the licensee and that it could “easily perform all the duties and responsibilities of the Licensee.” Dr. Saleh, he said, had insisted that the Foundation “agree to a roadmap for the future” before he left, or he, Dr. Saleh, would “have no option but to shut the programme down.”
151. Mr. O’Sullivan appended to that email a summary of the proposals, apparently the “road map,” proposed at the meeting. They involved TVTC having full control of the implementation of the Dubai company in KSA and becoming the licensee.
152. On 30th March 2010, Mr. O’Sullivan informed Dr. Saleh by email of the fact that that it had sent the notice to TAM on 23rd February giving 60 days notice of termination unless matters are resolved. He suggested that “allowing a few days for termination we could need to terminate during last week of April.” On 26th April he sent another email stating that the Foundation’s lawyers had requested that it formalise “our current position in the attached short agreement.” The attached draft document proposed acknowledgement of TVTC’s responsibility for training in KSA , statements by TVTC that TAM was operating illegally and that it had breached terms and conditions of its TVTC contract and similar matters.
153. Although the cure notice had been served, the agreement had not yet been terminated. The learned judge, as already mentioned, held that a second notice was required. The Foundation was aware of this and openly discussed its intentions with TVTC. As the learned judge found, the Foundation shared with TVTC the information about the cure notice itself.
154. Part of the learned trial judge’s findings of which the Foundations complains is (at paragraph 3.17 of his judgment) that in “December 2009, TAM was in discussions with TVTC regarding the financial terms of their agreement, in particular in light of the Al Yasser Project, which involved the provision of the ICDL programme to all government employees across a number Saudi Arabian governmental ministries.” He continued:
“TVTC had secured this contract which required it to train the Al Yasser project’s participants using ICDL’s standards. TVTC were seeking 20% of TAM’s total revenues and to hold the ICDL licence for Saudi Arabia, in exchange for which they proposed to allow TAM to operate the Programme as a sub-licensee. TAM indicated that it was not minded to significantly deviate from its standard pricing model and as a result relations between the two parties further deteriorated.”
155. The Foundation’s complaint appears to be that the learned judge’s finding did not justify his apparent view that there was some improper desire to obtain payments to which TVTC was not entitled. In context, it appears to me that the finding was well justified. In fact, there was further reference in correspondence to complaints by TVTC that TAM was not paying to it certain discounts or royalties to which it claimed to be entitled.
156. The final point is that the Foundation accepted TVTC’s view about its powers. It was clear even before Mr. O’Sullivan’s trip to KSA that TAM disputed TVTC’s statements of its position. As early as 2nd March 2010, the Foundation was on notice from a reputable London firm of solicitors, Squire Saunders, that TVTC’s view was contested by a Saudi law firm. The response of the Foundation was not to seek advice of its own but, as was stated in the letter of 5th March 2010 from A & L Goodbody, that they were “entitled to rely on statements of law provided by a Government authority in the jurisdiction….”
157. I have, no doubt, set out this history at unnecessary length, but I wish to show that, in my view, the learned judge was fully justified in the findings he made and which I have summarised under four headings. The two outstanding background facts are that, firstly, the agreement between the Dubai company and the Foundation was still in full force and effect and, secondly, that, as the Foundation was fully aware, TVTC was engaged in a hostile campaign against TAM and any continued activity by it in KSA . In those circumstances, the Foundation entered detailed direct discussions with TVTC about the termination of its own agreement with TAM’s licensor and about a replacement agreement or “road map.” Clarke J was entitled to conclude that the Foundation had effectively “done a deal” with TVTC. It kept TVTC fully informed about the state of its relations with the plaintiffs, to the extent of informing TVTC about the service of the cure notice and its intentions concerning termination of the agreement. The learned trial judge was entitled to conclude that all of this was bound to undermine the position of TAM and to make it very unlikely that there could be any resolution of its dispute with TAM. It accepted without question TVTC’s statements concerning its own powers, ignoring even reputable views to the contrary. I might add that the question of whether Mr. Al Bawardi had been willing to contemplate restructured contractual relationships with TVTC does not affect these conclusions. If anything, they serve to underline the difficult position of both plaintiffs.
158. All of these actions failed to take account of the Foundation’s existing contractual relationships. The learned trial judge was entitled to find the Foundation guilty of gross negligence, with the result that it lost the benefit of the limitation on liability provided by Clause 25.
159. I then return to the question of “wilful act.” I am satisfied that the Court may consider whether there was wilful default, even though the Dubai company has not served a notice to vary. Order 58, rule 10 provides that it “shall not, under any circumstances, be necessary for a person served with notice of appeal to give notice by way of cross appeal, but if such person intends, upon the hearing of the appeal, to contend that the judgment or order appealed from should be varied……” The question of wilful default was fully argued in the High Court to the extent that Clarke J cited (see paragraph 56 above) the authorities upon which the Dubai company relied. He decided the issue under clause 25 in favour of that company under the heading of gross negligence and concluded that the Foundation was not entitled to rely on the limitation of damages. The Dubai company wishes to uphold that finding, based on the additional argument of “wilful default.” I believe that this situation is covered by the decision of Keane C.J. in Ahmed v. The Medical Council [2003] 4 IR 302.
160. The service of the purported notice of termination of the agreement on 23rd February was unquestionably an intentional act on the part of the Foundation. It amounted to a breach of contract, firstly, because the conditions did not exist for the valid termination of the agreement on the claimed ground (the absence of a licence from TVTC) and, secondly, because it wrongly purported to terminate the agreement in part only. For the reasons already given, it is unnecessary to introduce the additional elements considered under the heading of gross negligence. Once it is established that the purported termination was a breach of contract on the part of the Foundation and that the act was intentional as, axiomatically, it was, there was a wilful act. On that ground alone, the Foundation forfeited any right to rely on the limitation of damage.
161. For these reasons, I would dismiss the appeal on all grounds.
Judgment of Mr Justice O’Donnell delivered the 14th day of November 2012
1 This is an appeal from an interlocutory ruling in a commercial court case in which Clarke J. in the High Court, and Fennelly J. in this court have delivered detailed judgments to the same effect. These judgments will control the future conduct of this litigation and accordingly it is only necessary to express as briefly as possible, my reasons for respectfully disagreeing with them on one of the issues in the case. For that purpose I gratefully account the account of the facts and the issues contained in the judgment of Fennelly J which, together with the judgment of Clarke J. in the High Court, sets out the full background to the matters now in dispute.
Approach to Interpretation of Contracts
2 I am in full agreement with the views expressed by Clarke J. in his judgment in the High Court, that judgment of Geoghegan J. in the Supreme Court in Analog Devices BV v Zurich Insurance Company [2005] 1 IR 274, represents the law in Ireland, approving as it does the well known passage from the judgment of Lord Hoffman in the House of Lords in Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896. I would respectfully endorse and adopt the statement by Lord Hoffman in full. Paragraph 4 of that statement gives, in my view, helpful guidance in the approach to the interpretation on contracts. In particular it seems to me that the observation that “the meaning which a document (or any other offerance) 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 grammar; the meaning of a document is what the parties using those words against the relevant background would reasonably have been understood to mean”, is not only correct but is a useful corrective to a tendency of lawyers which can often lead to a misinterpretation of the document. I also agree that the principle of interpretation contra proferentem, may usefully be applied not just to exemption clauses but to a contract in general, but normally only as a last resort in the case of ambiguity, and not as a general approach. As has been observed, the purpose of the principle is to resolve ambiguity not to create it. In this case, in my view, it is not necessary to have resort to the principle to resolve the issues of interpretation.
The First Issue
3 The first issue was the central issue on the hearing of this appeal. Much of the argument focussed on the meaning of the last sentence of clause 14.1:
“The licensee shall obtain at its own expense all licences, permits and consents necessary for it to carry on its business in the designated territory.”
The Foundation sought to argue that this sentence was not limited to licence permits and consents the absence of which “would render the operation of the programme in Saudi Arabia unlawful” as Clarke J. had held. Instead it was suggested that it had a broader meaning, and covered agreements required to conduct the business, as a matter of commercial and practical, rather than legal necessity. In this regard the Foundation pointed out that TVTC controlled approximately 68% of the market since it had its own training centres and licensed private training centres. Thus the agreement, and on one view of the word, the consent of TVTC, was necessary if TAM was to conduct its business which involved the provision of training in private facilities including those controlled by TVTC. It was also argued that this interpretation was reinforced when the sentence was read in the context of the clause as a whole. The first sentence of the clause provided that the exercise of the licence granted to the licensee under the contract was “subject to all applicable laws and actions and regulations and other similar instruments in the designated territory … and that the licensee shall at all times be solely liable and responsible for such due observance and performance”. Accordingly the Foundation argued, that if a licence permit or consent was required to render the business lawful, then that obligation was already imposed upon the licensee pursuant to the first sentence since it was solely liable and responsible for due observance and performance in accordance with the applicable laws. On this reading therefore, in to avoid the last sentence becoming an unnecessary redundancy it was necessary to read the words licences, permits and in particular “consents” more broadly. The reference to “its business” meant the business in which it was anticipated under the contract that the licensee would carry out. In this case it was intended that the licensee would carry on business in the private sector and this indeed occurred. In order to do so, the “consent” of TVTC was necessary for it to carry on that business. It did not have that consent. Accordingly the Foundation was entitled to terminate the licence.
4 Skilfully put though this argument was, it seems to me with respect, to be an example of the approach criticised by Lord Hoffman in his judgment in the West Bromwich case. That is, it focuses too closely on the words and their possible dictionary definitions, to the exclusion of their meaning to be gleaned from the context in which they were expressed. First it appears to me that the words, “licences”, “permits” and “consents” are to be read together. The principle noscitur a sociis is I think applicable. Therefore “consent” is intended, in this context, to be akin to a permit or licence both of which connote a legal rather than a commercial or practical requirement. The fact that “consent” has a somewhat broader connotation than “licence” or “permit”, makes sense in this context, since as pointed out by Clarke J., this form of contract was applicable in a number of very different territories, and it would not be possible to predict in advance what the precise format of the necessary legal authorisation in any given state might be. Furthermore the sentence must be read as part of clause 14.1, as a whole. That clause undoubtedly deals with legal requirements, and I see no reason to read the second sentence as shifting the context to commercial or practical matters. If such a change of gear was intended then it might have been expected that it would be the subject of a separate clause. In any event I doubt very much that the clause should be read with the degree of precision which the Foundation’s argument demands. There is no rule that if something is covered in one sentence in a contract it cannot also be addressed in another. Contracts, like speech, often involve some degree of overlap and repetition. Finally, I do not necessarily accept the premise on which this argument is based. It is not apparent to me that the sentences are necessarily repetitive. Thus it appears that the first sentence requires the licensee to be liable for due observance and performance. The second sentence makes it clear that any expenses incurred will be the liability of the licensee and in particular such licensee will not be able to look to the licence holder for any contribution to, or liability for such cost.
5 This brings us to the most difficult issue in the case, that is whether as a matter of the law of the kingdom of Saudi Arabia it was necessary for the Dubai company or TAM to have the licence permit or consent from TVTC to operate the licence in KSA. I fully agree with Clarke J. that this is both a difficult and delicate task. It involves first, the resolution of an issue as to foreign law which involved the Irish court in making a determination on evidence which was in stark conflict. That task is made all the more complex where, as here, the legal system differs markedly from those systems with which a common law court is familiar. Once the foreign law is ascertained and understood, there still remains the difficult task of attempting to apply that understanding to the concept of “licence permits or consents” which is drawn from the common law world. This was a very difficult task, and there was in my view a distinct lack of clarity about the respective contentions but I can see no basis for interfering with the conclusion to which the trial judge came. Accordingly I agree that the appeal on this point should be dismissed.
Issues 2 and 3
6 I agree with Fennelly J. that the agreement did not permit of partial termination, and accordingly that any such purported partial termination was ineffective. I also agree with him that it does not appear that the question of whether letter of the 9th of August 2010 was sufficient notice of termination does not appear to have been properly before the court as a distinct ground of appeal. Furthermore, I agree with him that since the High Court judge was correct to hold the agreement had not been lawfully terminated on at least two bases, it is in any event unnecessary to address this issue. It follows that I agree with that the judgment of the Court on liability should be upheld.
The Fourth Issue: Clause 25; Limitation of Liability
7 The trial judge made no finding on the question of whether the Foundation had been guilty of a “wilful act.” He considered furthermore that “gross negligence” involved something more than simple negligence, which he defined as negligence of a significant degree. He concluded that the Foundation had been guilty of such negligence, which could properly be described as gross negligence, and therefore clause 25 did not avail the Foundation and did not limit its liability for damages to ten per cent of the total amount paid by the licensee or €50,000 whichever was the lesser. In this court Fennelly J. has concluded that the trial judge was entitled to make this finding of gross negligence, and in any event the action of the Foundation in serving the notice purporting to terminate the agreement was a wilful act within the meaning of clause 25, and accordingly there was a further ground for holding that the clause 25 limitation did not apply. While I recognise the force of the reasoning leading to this outcome, I regret that I am not able to agree with either conclusion.
8 I have some doubts as to whether the issue of wilful act was properly before this court since the High Court judge made no finding on the matter and the plaintiff did not serve any notice to vary. Indeed, the issue was only addressed in one paragraph of the plaintiff/respondent submissions to this court. However since this is an interlocutory appeal in respect of a case which has still to be disposed of in the High Court, it seems to me that it is preferable to resolve as many questions as possible so as to reduce the matters which might be the subject of any further argument and appeal to this court. In any event, for reasons which I hope will become apparent it think it is more helpful to address the issues of gross negligence and wilful act together since they form part of the same phrase, and in my view cast some helpful light upon each other.
9 The plaintiff contended in the High Court and in this respect relying on respectable authority, that the term “gross negligence” meant no more than negligence and in the vivid phrase of Lord Cranworth in Wilson V Brett (1843) M&W 113 that “Gross negligence is ordinary negligence with a vituperative epithet”. It was also argued that the words “wilful act” had similarly received judicial interpretation. Reliance was placed on the dictum of Bowen LJ in re Young and Hartson’s (1886) LR 31 Ch D 168 in which a vendor and purchaser summons were he observed that the phrase wilful default was commonly used in such contracts. He stated that:
“Default is a purely relative term, just like negligence. It means nothing more, nothing less, than doing what is not reasonable in the circumstances- not doing something which you ought to do having regard to the relations which you occupy towards the other persons interested in the transaction. The other word which is sought to define is “wilful”. That is a word in familiar use in every branch of law, although in some branches of the law it may have a special meaning, it generally, is used in courts of law, implies nothing blameable, but merely that the person of whose action or default the expression is used, is a free agent, and that what has been done arises from the spontaneous action of his will. It amounts to nothing more than this, that he knows what he is doing, and intends to do what he is doing, and is a free agent. On this basis it is argued that it was only necessary that the act alleged to found the cause of action was an intentional act in the sense of being a voluntary one. It was not necessary that the person intend a breach of contract or a tort as the case may be.”
10 By this process of reasoning it was contended that clause 25 was to be read as limiting any claim, except where the claim arose from the willed voluntary act of the other party, or from simple negligence. I confess that this is a form of reasoning which I find wholly unconvincing. It is akin to the translation of a literary text by computer programme: the result rarely captures the sense of the text, and often makes little sense. It seems to me that this is a form of the approach to interpretation by dictionary definition compounded by judicial decision, but leading to unintended results, which is just that approach which the courts both in this jurisdiction and in the UK, have rejected, correctly in my view, in recent years. No Irish case has been cited endorsing the interpretation of the words contended for. If this phrase or its component parts had become terms of art or been so sanctified by authority that it could be said that both the drafter and the parties to the contract must have had a shared understanding of the meaning to be attributed to the phrase, then I would agree that such an interpretation should be given even if strained or unnatural as a matter of English, unless the contrary was clearly indicated. However, in the absence of such evidence or direct authority establishing the meaning attributed, I do not think the court should adopt the approach of reading into the clause definitions attempted in a different time and context, particularly when it leads to an outcome, that in my view, makes little sense, and therefore, unlikely to have been intended by the parties.
11 First, I observe that the phrases “gross negligence “and “wilful act” which have become the focus of attention in this case, form part of a clause headed “limitation of liability”. The structure of the clause therefore is to impose a general limit on the liability of the licensor, to which this clause creates an exception. It is for me an important starting point that the parties have plainly agreed to a general rule of limitation of damages, no matter how extensive such damages might be. But if the interpretation proposed by the plaintiff is correct, then the exception almost swallows the general limitation. It is worth asking, what on the plaintiffs’ interpretation, is the subject of the limitation on damages contained in clause 25.1? If all intentional acts are captured, then only unintentional or accidental acts (or possibly failure to act, nevertheless giving rise to a cause of action) are captured by the limitation. But no plausible reason can be proffered for making such a stark distinction. If the licensee does not have to intend to breach the contract, then there is no difference in terms of culpability or of the licensee, or in the damage capable of being done to the licensor, which would justify confining the licensee in one case to very limited damages and in the other permitting unlimited damages. Furthermore, the scope of the limitation in clause 25.1 is further cut down when it is recognised that any such failure to act or unintentional act (which would not be a wilful act) might readily be characterised as negligence, and therefore, per lord Cranworth, gross negligence. Indeed it would not be difficult for a competent drafter to characterise a failure to act, as itself (if intentional) as a wilful act. Since the only acts captured by clause 25 are those which give rise to a cause of action, (which by definition must be a valid cause of action since clause 25 will only apply to limit the damages to which the other party would otherwise be entitled,) then it is difficult to conceive of the circumstances in which inadvertence could not be characterised as negligence.
12 Not only is it surprising and implausible that the parties would have intended such a narrow scope to the limitation of damages in clause 25.1, but it is difficult to reconcile that interpretation with a reading of clause 25 as a whole. Clause 25.2, provides for a very wide ranging limitation of liability so that neither party will be liable for “incidental, indirect or consequential damages, including, but not limited to, loss of profits”. The limitation contained in clause 25.2 is undoubtedly a broad one. For example, it applies to limit damages both where clause 25.1 is engaged, and damages are otherwise limited to €50,000 (or 10% of receipts) and where the exception applies, and there has been a finding of wilful act or gross negligence. It is clear therefore that the parties were willing to agree to a severe restriction on any claim for damages. This in turn suggests that clause 25.1 should not be interpreted as restrictively as the plaintiffs suggest. Indeed the correct approach to clause 25 in my view, is that the parties had agreed that other than in exceptional circumstances any claim for damages would be limited first by a monetary cap, and second, by a restriction to a claim for losses other than consequential losses including losses of profit. The interpretation proffered by the plaintiff would subvert this understanding, since it would make the exception so extensive that it removes almost everything from the general limitation contained in clause 25.1. It is difficult to imagine a rationale for such narrow limitation, in the particular context of this contract, and hard to understand why, if such an outcome was intended, it was sought to be achieved in such a circuitous way.
13 Another relevant aspect of the matrix of facts against which the clause is to be interpreted, is the circumstances in which the clause is introduced into the contract. Where in consumer contracts there is inequality of bargaining power, a contract of adhesion, and an exemption clause which operate almost to remove any substance from the contract itself, then the law is justified in my view, in adopting a very strict and approach to the interpretation of the limitation clause. However in other circumstances the limitation may be simply an essential part of the bargain made by the parties defining the extent of the obligations being undertaken by each party, allowing them to enter the contract, and often reflected in the consideration for it. Thus promoters of particularly risky activities may simply not be able to offer the service at any reasonable cost to willing consumers without some guaranteed limitation of liability being accepted by the consumer. Otherwise, no fees chargeable could be sufficient to pay any necessary insurance premium (if insurance were available) let alone cover any possible claim for damages. The same principle applies where there is a significant disparity between the cost of the activity and the potential profit that the other party may make and therefore lose if there is found to be a breach of the contract. Here it is a significant background fact that the Foundation is a not for profit company, limited by guarantee, and the object of which is to promote the European Computer Driving Licence concept which has been a very successful qualification. The Foundation is not organised for commercial gain, and accordingly does not set its fees to maximise the amount it can recover from any individual operator of the concept of any different territory. It seeks instead the broadest spread of the concept. However, the licence granted does carry the possibility of exploitation by a licensee for considerable profit. It is obvious therefore why the Foundation would seek to limit its liability to licensees. If it did not do so, it would, at a minimum, have to set fees much higher to cover potential liabilities. That however would deter prospective licensees, and thus reduce the potential spread of the ECDL. Accordingly, the deal offered by the Foundation is to make the ECDL product available at a limited cost in return for inter alia, a limitation on its exposure to future claims by licensees. Once again, this suggests the limitation should not be given a narrow almost non existent quote suggested by the plaintiffs, since to do so might significantly alter the bargain between the parties.
Gross negligence
14 It is in this context, factual, structural and textual, that the particular words of the clause should be interpreted. I fully agree with Clarke J. that the term “gross negligence” must mean something more than mere negligence. But I do not agree that it means simply “negligence to a significant degree”. “Gross” even after it appropriation by teenagers across the world is not some pallid or superfluous adjective. It seems to me to convey the sense of something flagrant, clear or obvious and perhaps offensively so. The concept, “to a significant degree”, is much more elastic. “Significant”, is often used in the double negative formulation “not insignificant”. I do not think that anyone would, in normal language, equate gross negligence with negligence which was not insignificant. While it might be said that any act of gross negligence is significant (or not insignificant) the contrary does not in my view, hold true.
15 I also respectfully disagree with the trial judge’s approach that this assessment should be made in the context of the facts of the case and not, as he put it, “in the abstract”. On the contrary, and in particular since the words in this clause are to be found in numerous other contracts applying in different countries and different factual circumstances, the appropriate course in my view is to seek, so far as possible, to separate the legal question of the interpretation of the words used in the contract from the question of whether the facts found reach that standard. It is necessary to attempt to arrive at an understanding of what the parties agreed to when they entered this contract and provided for limitation of liability other than in a case of gross negligence. That exercise must be approached, so far as is possible, by looking at the terms used against the factual matrix obtaining at the time the contract was made and without regard to the dispute which subsequently emerged. There is a real risk when the bar is set at the same time as or after the competitor has jumped, or when a pass mark is set after the examination has been marked. In such circumstances it is easy for the question posed to collapse into, and be substituted by, what may be the more congenial question as to whether the plaintiff should succeed. In circumstances where this issue only comes to be determined after there has been a finding of a breach and the possibility of loss caused exceeding the limitation period, substitution of such a question will inevitably favour the plaintiff.
16 In assessing and considering the question what is meant by gross negligence, the judgment which I have found most useful, is that of Mance J. (as he then was) in the Hellespont Ardent Red Sea Tankers Ltd v. Papachristidis (1997) 2 Lloyd's. Rep. 547, 586, and the decisions of the New York courts there reviewed. At page 587 of the report: Mance J. stated
“Whether one looks to the authorities decided and the principles identified in the context of New York public policy [being the general law of New York which prohibited exclusions of liability for gross negligence] or to the simple meaning of the words without attributing to them any special meaning under New York law at all, the concept of "gross negligence" there appears to me to embrace serious negligence amounting to reckless disregard, without any necessary implication of consciousness of the high degree of risk or the likely consequences of the conduct on the part of the person acting or omitting to act….
If the matter is viewed according to purely English principles of construction, I would reach the same conclusion. “Gross” negligence is clearly intended to represent something more fundamental than failure to exercise proper skill and/or care constituting negligence. But as a matter of ordinary language and general impression, the concept of gross negligence seems to be capable of embracing not only conduct undertaken with actual appreciation of the risks involved but also serious disregard or indifference to an obvious risk….
As to authority, I was not referred to the criminal field, where “gross negligence” features in the law of manslaughter. In essence, the position there is that a breach of duty of care will amount to manslaughter if its seriousness in all the circumstances is such that a jury considers that it should be characterised as a crime. See R v Adamoko [1995] 1 AC 171. The analogy in the civil field would be explain gross negligence as conduct so seriously negligent that the defendant should not be entitled to rely on the exemption clause. The test involves an element of circularity, but Lord Mackay in Adamoko said it was “necessarily a question of degree, and an attempt to specify that degree more closely is … likely to achieve only a spurious decision”. Although in the present context, the question cannot be left to a jury and it would be necessary to attempt to identify and value of the various factors bearing on the decision, the question whether any negligence in the present case was “gross” appears to me ultimately still very much a matter of degree and judgment.”
The court also found particular assistance in the case of Shawinigan v Vokins [1961] 3 All ER 396, (which in my view is also helpful here) where Megaw J. stated:
“In my view recklessly means grossly careless. Recklessness is gross carelessness – the doing of something which in fact involves a risk, whether the doer realises it or not; and the risk being such that having regard to all the circumstances, the taking of that risk will be described as “reckless”.”
At page 618 Mance J. concluded:
“The question is, at the end of the day a jury question, would it arise in the context of the clause which makes it clear that it is only in certain exceptional cases that immunity from suit is lost. The present case although it reveals significant misjudgements and shortcomings in approach and in observance of proper standards in relation to Ardent, does not in my view involve negligence of so grave a nature as to fall outside the intended sphere of immunity?”
While I would not wish to place decisive emphasis on any individual linguistic formulation, it is I think noteworthy that “significant misjudgments and shortcomings in approach and in observance of proper standards” which Mance J considered would not amount to gross negligence, is something clearly capable of being described as “negligence to a significant degree” which the trial judge considered could. I also agree with the observations of Smith J. in Camerata Property Inc. v Credit Suisse Securities (unreported QBD 9th March 2011):
“I cannot accept the parties intended [the reference] to connote mere negligence… I accept that the distinction between gross negligence and mere negligence is one of degree and not of kind: see Armitage v Nurse [1998] Ch 241 at p.254 … per Millett LJ. As such it is not easy to define or even to describe with any precision. However as Mance J. recognised in Red Sea Tankards Ltd. v Papachristidis (the Ardent) [1997] 2 Lloyd’s Report 547, 586 “if the matter is viewed according to purely English principles of construction … “gross” negligence is clearly intended to represent something more fundamental than failure to exercise proper skill and or care constituting negligence …”
Accordingly I would consider that the concept of gross negligence in the context of this contract is best understood as something flagrantly and conspicuously wrong, and conduct undertaken with actual appreciation of the risks involved, or in serious disregard of, or with indifference to an obvious risk, akin to recklessness. It seems obvious to me that the risk in question in this context must be to a breach of contract giving rise to a claim for damages.
17 The fact that I consider the formulation “to a significant degree” as an unduly broad definition of gross negligence, does not in any way resolve this matter. Since this is a matter of degree and judgment, it is necessary to consider whether the facts of the case satisfy the test of gross negligence set out above, all the more so because the trial judge’s definition is clearly capable of encompassing conduct which would constitute gross negligence as so defined . First, I also agree with the trial judge that it is difficult to apply the concept of negligence in the context of an allegation of breach of contracts. The concept of negligence itself comports a duty of care, and the mere existence of a contract does not give rise to a duty of care on either side, and the question of due performance of the contract is one to which care or lack of it is normally irrelevant. The contract defines the conduct which is expected from each party. Since a contract will not normally require any standard of care from the contracting parties it is difficult to speak in terms of assessing any conduct as negligence still less gross negligence in some general way. As set out above I consider that the concept must be applied in the context of gross negligence in relation to the breach alleged and the possibility of substantial damages flowing therefrom. This indeed is something which in my view may be relevant to the overall interpretation of the clause, and the fact that this approach may avoid or reduce the difficulty of considering negligence in the abstract, is a further pointer in the interpretation of the term.
18 For my part I do not think it is particularly relevant that it can be said that the Foundation had “in effect” done a deal with TVTC at a time when the legal relationship between the Foundation and the Dubai company remained in full force. There is nothing in the contract which precluded the Foundation from discussing any matters with the TVTC, and it was obviously very much in its practical and commercial interests to do so. Had the Foundation been entitled to terminate the contract, there could have been no objection to it discussing the matter with TVTC or doing a deal, effective or otherwise, with it. Similarly, if the contract with the Dubai company was due to expire, there could be no objection to the Foundation discussing future arrangements with the TVTC however much that might offend the plaintiffs. Accordingly I do not see how any duty of care to avoid a discussion with TVTC while the licence remained in force could be said to arise, and it follows that I respectfully cannot agree that it was negligence still less gross negligence to “effectively” do a deal with TVTC. For the same reasons I cannot see that it was negligent or still less grossly negligent to keep TVTC informed of the steps it had taken even if it were possible to say that it removed any realistic possibility of resolution of the dispute within TAM and TVTC. Looked at with the cool wisdom of hindsight, the Foundation might well have been more astute, not to say cunning, in its dealings with the parties who were clearly involved in a complex dispute by reference to laws, customs and practices which were only dimly and imperfectly discernible from the perspective of the Foundation. But the fact that if the Foundation had played its hand very skilfully it might have procured an agreement between TAM and TVTC cannot amount to negligence, unless it can be said that it was under some sort of duty to do so. This approach in any event seems to me to implicitly suggest that somehow the Foundation was obliged to take TAM’s side in its dispute with TVTC, and does not to give sufficient weight to the difficulty facing the Foundation which on any view was that TAM had now got itself into a position where it had antagonised a body which undisputedly controlled 68% of the market for the ECDL product in a very important territory.
19 The last two points relied upon by the plaintiffs can I think be taken together and are more difficult. It is asserted that it was grossly negligent of the Foundation to proceed to purport to terminate the contract in circumstances where, what was described as at least a credible view had been presented that TVTC view of its licensing powers was incorrect. This refers to the fact that on the 2nd March 2010 the Foundation had received correspondence from a London firm of solicitors, Squires Saunders, to the effect that TVTC’s view of its powers was contested by a Saudi law firm. It is quite correct that the response of the Foundation was not to seek advice of its own but to take the view, as stated in the letter of response by Messrs A&L Goodbody of the 5th March 2010, that the Foundation was “entitled to rely on statements of law provided by a government authority in the jurisdiction …”. I have no doubt that seen in hindsight it was undoubtedly foolish of the Foundation to seek to terminate the plaintiffs contract without obtaining its own Saudi law advice, or at least an indemnity from TVTC, (although there would still an interesting question as to whether although the Foundation would undoubtedly have acted carefully in obtaining the indemnity, that would mean that it would able to rely on clause 25.1 if it wrongfully terminated the contact). I would also be prepared to accept that in a straightforward case it would be negligent, and probably grossly negligent, for a party contemplating the termination of the contract on grounds that were contested, to fail to seek legal advice on the lawfulness of any purported termination, and all the more so if such advice would have been unequivocal. However on any view, this was not a straightforward case. Indeed the question on which advice would have to be sought, the entitlement of TVTC to licence TAM, is undoubtedly the most difficult aspect of this case, shrouded as it is in the complexity of seeking to understand from the perspective of an Irish court, the Saudi legal structure, and the place of TVTC within it. I am therefore influenced by the fact that the sharp difference of opinion in this case, even after a period for reflection and consideration, demonstrates fairly clearly that had advice been sought, it is very unlikely that it would have been clear cut, still less that it would have confirmed the view put forward on behalf of the plaintiffs.
20 Furthermore it is particularly significant that in their responding letter of the 5th of March Messrs A&L Goodbody expressly sought sight of the legal opinion relied upon. The response of Messrs Squires Saunders on the 11th March 2010 was decidedly curious. It stated merely that “Our client does not agree with the statement of law provided by TVTC and has engaged counsel to take the matter up directly with TVTC”. The letter did not expressly deal with the request to provide a copy of the opinion and seemed to avoid it. Instead it attached “a copy of TVTC’s letter to our client dated 13th February 2010 together with our client’s Saudi Arabian lawyers response dated the 1st March 2010”. The letter from the Saudi Arabian lawyers to TVTC contained a statement that “we would like to reassure you [TVTC] that our client ICDL Arabia is complying with all laws and regulations applicable in the Kingdom of Saudi Arabia and with all contracts related with governmental or private authorities and simply requesting that TVTC explain its contention that ICDL was in breach of its agreement and was practising without a legal permit”. This falls far short of a formal legal opinion that TVTC had no legal power to licence either TAM or the program. Indeed n a formal opinion was only provided after repeated requests, and six months later, on the 25th of August, and after the letter from A&L Goodbody’s of the 19th August 2010 which the court found was a formal notification of termination. Furthermore, it was accepted in evidence that the plaintiff had never stated to TVTC in writing that they disputed the authority of TVTC. The letter of the Saudi Arabian law firm referred to, rather than disputing the authority of TVTC, requested that TVTC clarify what activities were practised by ICDL without a permit. It is also significant, that it appears that the plaintiff took no step to have the matter determined in the Saudi Arabian courts. Finally, when the opinion came to hand with the letter of the 25th of August 2010, it is clear that it was based upon an understanding which was not consistent with the evidence, or indeed with the basis upon which the trial judge for his part concluded with obvious difficulty, that a licence from TVTC was not required. The position was therefore very far removed from the clear cut situation where a legal opinion is provided by one side, and legal advice though readily available, is not sought by the other. I accept that this is perhaps a difficult issue of judgment, but particularly in circumstances where I am not at all convinced that any request for legal opinion would have provided any clear advice that TAM was not operating unlawfully, I would conclude, adopting the language of Mance J. that although there were indeed significant misjudgments and shortcomings that this is not such an exceptional case involving negligence of so grave a nature as to fall outside the intended sphere of immunity. Finally, in this regard, I should say that I do not think that it is sufficient to conclude, if this were the case, that the learned trial judge was entitled to find the Foundation guilty of gross negligence. It appears to me that this is essentially an issue of law for this court to decide: on the facts found was the Foundation guilty of gross negligence in my view it was not.
Wilful Act
21 It is therefore necessary to consider the question of “wilful act”. It is for my part significant that the trial judge did not come to any conclusion on this ground. The first issue is to consider what was meant by the parties in adopting this phrase. The essential question here is whether the term “wilful act” means no more than “intentional” in the sense that the act was voluntary. In particular, if the intention does not relate in any way to the breach of contract, but merely to the act alleged to be such a breach, then it will, as Fennelly J. observes, be axiomatic that the purported termination that gave rise to the cause of action at least in specific performance was intentional and therefore a wilful act. Unfortunately I cannot agree with this approach precisely because in most if not all cases it would lead to the automatic disapplication of the limitation clause.
22 First, as already touched on above, such an interpretation would make little sense of the clause. Prima facie as observed by Mance J. in The Hellespont Ardent, the apparent intention of the clause is to provide for a general limitation on the liability save in exceptional circumstances. However, if wilful act is to be interpreted as meaning no more than the act giving rise to the cause of action is intentional, then the vast majority of potential breaches of contract (and other causes of action) will fall within the exception, and very little if anything, will fall within the general clause. If “wilful act” means no more than “intentional act”, then the only thing not covered by that provision would be inadvertent or accidental or unintended acts and possibly failure to act, although even then, if a person deliberately intended to act for some reason giving rise to a cause of action, it would not take much imagination to see that it could be plausibly argued to be a wilful act. It is difficult to conceive of the scope of inadvertent or accidental actions (as opposed to actions giving rise to inadvertent or accidental breaches) but if such matters can be conceived of their scope is significantly narrowed when the clause is read as it must be in conjunction with the limitation as to gross negligence. Furthermore, even if assuming for the moment that there is a realistic distinction in fact between intentional acts, and other types of acts which can give rise to a cause of action, it is difficult to conceive of any sensible reason why the parties would wish to make such a distinction. Once the act is shorn of any intention to breach the contract (or knowledge of the possible consequences) there is no sufficient distinction in logic or morality between an intentional act giving rise to an unintended breach of contract, or other wrong, and an accidental act giving rise to the same consequence, and consequently no reason for the parties to severely limit damages in one case and not the other. Accordingly, it is for me a serious difficulty with the interpretation advanced by the plaintiffs, that it offers no sensible distinction between those acts captured by the general limitation clause, and those subject to the exception.
23 Here, a consideration of the phrase “wilful act or gross negligence” as a whole may be of some assistance. Once it is accepted that gross negligence is a concept different from mere negligence, then it also becomes clear that the distinction made is one of culpability. It is clearly more reprehensible to be guilty of gross negligence which is a flagrant or obvious breach, than mere negligence. One might expect therefore that the same distinction is being made in introducing the concept of a wilful act, and that what is conceived of is, and exceptionally, that the licensor may be guilty of the conduct sufficiently reprehensible to justify this application of the limitation on damages which would otherwise apply.
24 It is of course the case, that when viewed in isolation the words “wilful act” can be understood as meaning no more than intentional, voluntary or willed , and not automatic, inadvertent or accidental. But those words have to be viewed in the context in which they are used. It also carries a connotation of self –will, perversity, and being headstrong and even obstinate. Furthermore, it is not merely a “wilful act” which is required to disapply the limitation contained in clause 25.1: it must be a wilful act which gives rise (“causes” in the language of the clause) a cause of action. The act in its wilful or intentional nature, cannot be separated from the cause of action, in this case an alleged breach of contract. It is, in my view, clear that what must be intended, or willed or be the subject of obstinacy, is a breach of contract (or other wrong giving rise to a cause of action arising out of the contract). This is not only consistent with what I consider to be the natural meaning of the words, but also the structure of the clause, and with the limitation in clause 25.1 being disapplied only in exceptional circumstances. The line which his drawn is a logical one, and furthermore consistent with the distinction being made in the context of gross negligence. In this way there is a continuum of the type of conduct which will lead to the limitation clause not being applied. This conduct runs from intentional breach, through headstrong conduct, recklessness and gross negligence. In each case the conduct must relate to the possibility of a breach of contract In this way the clause is being read as a consistent and coherent whole , rather than by reference to dictionary, or judicial, definitions of individual words. It will also be recalled that one of the difficulties with approaching the clause and looking at its individual components, is that the concept of negligence is difficult to apply and almost illogical, in the absence of a duty of care. Negligence, as Fennelly J. observed in Glencar v Mayo County Council [2002] 1 I.R.,155does not exist in the abstract: “the failure to exercise due care can only be established by reference to a recognised duty”. However, if gross negligence is as Megaw J. suggested in Shawinigan v Vokins , akin to recklessness in a sense that as he said “recklessness is gross carelessness” it becomes more understandable. The negligence, gross carelessness, or recklessness, is to be understood in connection with the acts giving rise to the cause of action. Thus, in the case of a breach of contract, which is after all the most obvious cause of action likely to arise in connection with the contract, clause 25 will normally impose a limitation of €50,000 or ten percent of revenue whichever is lower unless the licensor has deliberately breached the contract or has been grossly careless as to whether his contract was a breach of contract or not. This appears to me to be consistent with the contract as a whole. Furthermore, in the particular context of this case, it appears to be that the words of Mance J. in the Hellispont Ardent are equally applicable here. The evidence reveals significant misjudgements, shortcomings and errors, but it does not in my view involve a deliberate or obstinate breach, or negligence so grave so as to fall outside the intended sphere of immunity.
25 It remains to consider however, whether this interpretation of the words “wilful act” are precluded by authority. In this regard the plaintiff has relied on a number of cases. Perhaps the most important of these is in re Young and Hartson’s (1886) LR 31 Ch D 168 which was a vendor and purchaser summons. The dictum of Bowen LJ in the Court of Appeal has already been set out at paragraph 7 above. In my view, there is no reason to read that judgment as compelling an interpretation of the relevant conduct here, namely wilful act giving rise to a cause of action, as merely that the person is a free agent and that what has been done arises from the spontaneous action of his will. There is a certain irony in this citation of what is merely a dictum in the judgment of Bowen LJ, as somehow setting in stone the understanding of the word wilful even when used in a different textual and legal context, since the passage quoted is immediately preceded by an express disavowal of the benefits of using one decision to define the meaning of the word for all future cases: At page 174 of the report he said
“The term “wilful default” – though one in common use in such contracts – is not a terms of art, and to pursue authorities with a view to defining for all time what is its meaning in a contract like this appears to be press citation far beyond the point at which it ceases to be used. Default is purely a relative term just like negligence …”
The other authority relied on was Wheeler v New Merton Board Mills Ltd [1933] 2 KB 669. There a young workman had been seriously injured in an industrial accident when clearing out a machine when his arm was cut off between the elbow and the wrist. Section 29 of the Workman’s Compensation Act 1925 provided that the employer should not be liable in any proceedings “except in case of such personal negligence or wilful act as aforesaid”. The evidence showed that although there was negligence, it was the negligence of the foreman. At this time, contributory negligence, the defence of volenti non fit injuria and the defence of common employment, were all hurdles which a plaintiff had to surmount if he was to be successful. Negligence of an employer was not enough, and negligence of a co- employee was positively fatal to a claim against the employer. In such circumstances only the possibility of proof of “wilful act” offered the opportunity of recovering against the employer. At first instance, Talbot J. said of the concept “wilful act”:
“It is true though “wilful” and “intentional” are synonymous … “wilful” is more commonly used in matters in breach of bad contact or of actions than good though it does not necessarily blame … (see per Bowen LJ in re Young and Hartson’s contract); but that is far from supporting the strange contention that wilful act in s.29 ss.1 must be confined to something done with intent to injure.”
In consequence, the court was prepared to conclude that the provision of a dangerous machine with the intention that it should be used by the company’s workmen was more properly described as an act than as negligence. To the modern eye I think this would more naturally fall to be considered negligence than as a deliberate or intentional act, and perhaps outside the constraints of the law as it stood in 1933 it might have been so understood. That only illustrates the fact that this is a decision which much be understood in its time, and particular legal context. Accordingly, I do not think it provides any useful guidance to the interpretation of a modern contract for the provision of computer services. Accordingly, I would conclude that the limitation provision in clause 25.1 applies, and that the Foundation was not guilty of either gross negligence or wilful act, and accordingly, for my part, I would allow the appeal on this point.
