Scottish Court of Session Decisions

This was an action at the instance of J. Von Mehren & Company, brokers and merchants, Leith, against the Edinburgh Roperie and Sailcloth Company, Leith, in which the pursuers concluded for payment of two sums of £434 and £1500 as damages for breach of contract.

The contract (damages for the alleged breach of which were claimed in this action) was contained in the following letters which passed between the pursuers and defenders:—“Regarding our Mr Frew's interview with you to-day, we agree to take all our requirements from you of the different goods mentioned below at prices and terms stipulated for one year from 28th January this year to the 28th January 1900. The fishing lines to be at last year's cut rates, less 10 per cent. The canvas to be at last year's rates less 11 3 4 per cent. And the Manila rope to be at 31s. per cwt., less 11 3 4; per cent. All the above-mentioned goods to be of the same quality as supplied to us previously. Kindly confirm this contract and oblige.”

We are in receipt of your favour of yesterday's date, and hereby confirm contract to supply from the 28th curt. to the 28th January 1900 all your requirements in Manila hemp rope at 31s. per cwt.; sailcloth at the rates we charged you last year; Italian hemp lines at the rates we charged you last year. Discount rates to be—On Manila, 11 3 4 per cent.; on sailcloth, 11 3 4 percent.; on lines, 10 percent.; two months current account; the above goods delivered free, Leith. You may be assured that our endeavour will be by prompt and careful attention to your commands to give you thorough satisfaction in the fulfilment of this contract.”

The pursuers averred that in October 1899 they intimated to the defenders that they would require 30 tons more of Manila rope, and that the defenders accepted the intimation; that on 15th December 1899 they ordered under the contract a quantity of 11 tons 1 cwt. 1 qr. 2 lbs. of Manila rope, and that the defenders refused to supply the same, maintaining that they were not bound to do so under their contract, and stating that they would not supply any further quantity than 2 tons at contract rates during the contract year. The pursuers averred further that the price of Manila rope had advanced greatly during the period of the contract; that as they required the rope for the purposes of their business they agreed to accept the quantity thus ordered by them from the defenders at the market rate of the day, reserving their claim to repayment of the excess over the contract price, which amounted to the sum first concluded for, and that “the said goods were necessary for the pursuers' requirements for the year from 28th January 1899 to 28th January 1900.”

The pursuers further averred that owing to the refusal of the defenders to supply any further quantity at the nett price of £27, 7s. 2d. per ton in terms of the contract they had suffered serious loss; that the market price of Manila rope fibre for the period during which the defenders refused to supply any further quantity under the contract was not less than £66 per ton; that they purchased the rope for re-sale, as was well known to the defenders; and that they were unable, owing to the defenders' refusal, to execute orders for rope which they had received, and in particular an order for 15 tons received on 10th January 1900, which they passed on to the defenders, and which they refused to execute. They also stated that their trade was not confined to the Faroe Islands and Iceland, as alleged by the defenders. They assessed the damages thus suffered by them at the amount set out in the second conclusion.

The defenders averred—“(Stat. 2) In or about the beginning of 1893 the pursuers entered into negotiations with the defenders for the supply by the defenders of their requirements in these articles [fishing lines, sailcloth, and Manila rope] for their trade with Faroe and Iceland, and the defenders entered into a contract with them for the supply of their requirements in fishing lines for the said trade at fixed certain rates. The rates were based upon those allowed to the defenders' own Iceland agent, and the pursuers were prohibited from selling below a certain price to preclude them underselling the said agent. The contract was at first confined to fishing lines, but was subsequently extended to embrace the pursuers' requirements for said trade in sailcloth and

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Manila rope. It has been periodically renewed with certain variations in prices. Under these contracts the defenders have continued over a period of years to supply the pursuers with their requirements in these articles for the Faroe and Iceland trade. The annual average amount of Manila rope ordered and supplied under these contracts up to the end of the year 1898 was 2 tons 9 cwt., and did not in any year prior to 1898 exceed 1 ton 6 cwt.” They further averred that the contract was confined to the pursuers' requirements for the Faroe and Iceland trade; that through the whole course of dealings between the parties they had dealt with each other with reference to the requirements of that trade only; that the expressions in the contract letters were understood by both parties in that sense; and that the rope in respect of which the present action was raised was not required by the pursuers for that trade. They accordingly maintained that it was therefore outwith the contract.

The Lord Ordinary ( Low) on 5th July 1900 allowed a proof before answer.

Opinion.—“It has been very properly admitted in this case that the words ‘all your requirements’ cannot be read as meaning any amount you may ask to be supplied, and that ‘requirements’ must necessarily refer to a certain standard … I have no doubt that the pursuers' averment is perfectly relevant. They say that they are merchants, and that their ‘requirements’ were meant to supply any customers who in the course of trade might ask for rope, and that they have been unable to carry out at least one order of that kind. But, then, what is the defenders' case? The defenders aver, as I read it, that the trade which the pursuers carry on is a trade with the Faroe Islands and Iceland. On the one hand they import from these countries certain produce, and on the other hand export fishing lines, &c., and they say that the standard which the parties had in view in making the contract was that trade. Now, suppose it is proved to be the fact that the only trade carried on has been a trade with the Faroe Islands and Iceland, and that it was in view of that fact that this contract was entered into, it seems to me that that was a matter of fact to be taken into consideration. In a contract either side is always entitled to show the circumstances with reference to which the contract is made. I am not going to express any opinion as to the competency of this class of proof or that class of proof. I think the pursuers have stated a relevant case in their condescendence, and I think the defenders have also stated a relevant case; so it seems to me that the proper course is to allow proof before answer.”

The import of the proof and of the correspondence bearing upon the question appears fully in the opinion of the Lord President infra.

On 23rd February 1901 the Lord Ordinary ( Kyllachy) decerned against the defenders for payment of the sum of £953, 15s. 10d.

Opinion.—“In this case the pursuers are a firm who describe themselves, and are described in the Leith Directory, as brokers and merchants in Leith. The defenders, the Edinburgh Roperie Company, are manufacturers on a large scale of ropes, cordage, sailcloth, and similar articles. The pursuers claim damages for an alleged breach by the defenders of a certain contract contained in letters dated 13th and 14th January 1899, whereby the pursuers agreed to take from the defenders, and the defenders agreed to supply the pursuers, with ‘all their requirements’ of the different goods mentioned, at the prices and terms stipulated, for one year from 28th January 1899.

Among other goods, the contract applied to Manila rope, of which the price was to be 31s. per cwt., less a certain discount; and the alleged breach consists in this, that the price of Manila rope having greatly risen towards the close of the year, the defenders refused to execute—or at least to execute at the contract price—certain orders of the pursuers, and in particular two orders, viz., one for 11 tons odds Manila rope sent on 15th December 1899, and another for 15 tons Manila rope which the pursuers received and passed on to the defenders on 10th January 1900.

The ground of the defenders' refusal was that the orders in question were outwith the contract, in respect that the rope ordered was not required for the pursuers' Faroe and Iceland trade, to which trade the contract was (as the defenders say) confined. In point of fact, the orders were given in the one case to meet a sale which the pursuers had made to Mr Dines Petersen, Iceland merchant, Copenhagen, and in the other to meet an order (or firm offer) which the pursuers had received from Mr Zollner, merchant in Newcastle, who, it is said, required the rope partly for his Iceland trade and partly for his Iceland trawlers. The defenders' view was that in these circumstances neither order was in connection with the pursuers' own trade—that is, their own direct trade—with Iceland and Faroe; and accordingly they refused implement, taking up the position (which they still maintain) that the contract was limited to the supply of the pursuers' requirements for their direct trade with Iceland and Faroe.

The question in controversy is thus plainly a question on the construction of the contract—that is to say, the contract contained in the two letters to which I have referred. But the defenders having made certain averments as to the nature of the pursuers' business and the course of dealing between the parties, under a series of previous contracts said to be expressed in the same terms, a proof before answer was allowed in the Procedure Roll. The proof has now been taken, and I have to construe the contract with such help, if any, as may be legitimately obtained from the proof.

Taking the contract by itself, and considering simply its terms as used between parties who were respectively manufacturers and merchants, I do not, I own, think that there is much doubt as to its

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scope. Two points at least are I think fairly clear.

In the first place, the contract obligations were mutual and correlative. On the one hand, the defenders obtained the right of supplying the pursuers' whole requirements. On the other hand, the pursuers obtained the right of having their whole requirements supplied by the defenders. The requirements contemplated were therefore the same with respect to the rights of both parties. And, accordingly, they could not, I apprehend, be measured simply by the pursuers' demands. The pursuers could not escape from what I may call their ‘thirl’ to the defenders merely by demanding nothing. On the other hand, the defenders could not be bound to supply the pursuers' demands without reference to their needs. In short, the term ‘requirements,’ as used in the contract, did not simply mean the pursuers' demands.

In the next place, it has to be observed that the pursuers were not shipowners or shipbuilders, or other persons who used ropes and similar articles. They were not, so to speak, consumers, but brokers and merchants, whose professed business was to buy and sell. This is common ground. Accordingly, it seems plain that the contract had reference to the pursuers' sales. There is no suggestion that it covered, e.g., accumulations of stock. At all events, for present purposes, that may be assumed; and therefore it may be taken that the measure of the pursuers' requirements, in the sense of the contract, had reference to their sales, such sales, of course, including not only actual sales, but orders or firm offers which they in ordinary course received.

So far I am disposed to think that the parties are not really at issue. And I may observe also that I do not understand the defenders to suggest, with respect to the pursuers' sales, a limitation to what may be called retail sales—sales, that is to say, to actual users as distinguished from dealers, such as ship chandlers or other middlemen. Questions of that kind may, of course, be figured, but I think I am right in saying that they are not here raised. They are certainly not raised upon record, the defenders contending only for one definite limitation, viz., to sales made by the pursuers in Iceland and the Faroe Islands. That is, I conceive, the issue—whether there is within this contract, or can be properly read into it, a limitation to sales made by the pursuers to customers in Iceland and Faroe?

Now it must be acknowledged that the onus here rests upon the defenders, and is somewhat difficult. Prima facie, there is nothing in the language of the contract to support the limitations suggested. Nor can it be deduced from the pursuers' professed trade. They (the pursuers) do not trade exclusively with Iceland and Faroe. They say (and there is no contrary evidence) that they deal with Denmark, Spain, Ireland, Belgium, and Holland; and there is, of course, no reason why they should not extend their business as occasion offers. The whole case therefore depends on the alleged previous course of dealing; and no doubt facts might be figured which might make an appeal to that course of dealing useful and also legitimate. For instance, if under previous annual contracts expressed in the same terms, the defenders had declined to supply goods except for the Iceland and Faroe trade, and the pursuers had acquiesced in that declinature, that circumstance might go a long way to construe, for all future dealings, the sense in which the term ‘requirements’ was used by the parties. But although an attempt was made to prove that in one instance something of this kind occurred, it cannot I think be said that the proof succeeded. And accordingly the defenders' case came in the end really to rest on this—that there having been a series of contracts from 1893 downwards, couched in language not dissimilar to the present, the pursuers never in fact asked for goods except for export to Iceland or Faroe, or for use in ships trading to these places. That is certainly proved, and is indeed not disputed. But the question is whether, because the pursuers' requirements have been de facto so limited under previous contracts, that made it an implied term of the contract of 1899 that they (the pursuers) should in no circumstances extend their business or enlarge its field.

I have given every attention to the defenders' argument on this point. But I have not, I must say, been able to accept the construction for which they contend. It may be that, on the pursuers' construction, the contract put, or might have put, the defenders in an awkward position; and put, or might have put, the pursuers in a position of undue advantage. But it is not, I am afraid, legitimate to strain the construction of a contract in order to make it conform to what one may conjecture the parties meant. Besides, I am not convinced that this contract was after all so improvident as might at first appear. It was, as I have said, limited to the pursuers' bona fide sales; and although upon a sharp rise in the market, such as here occurred, it gave a considerable opportunity to the pursuers, yet the latitude of that opportunity was by no means unlimited. Buyers, as a rule, know that a sharp rise may be shortly followed by a sharp fall, and are not therefore likely to buy much beyond their immediate requirements, even if tempted by a considerable discount off the existing price. This was, in fact, illustrated by what here occurred. The pursuers did not after all succeed in making a great number of firm transactions, or obtaining any great number of firm offers. There are only two which, being of that character, enter into the case, and in respect of which the pursuers' counsel, as I understood, ask damages. They do, however, ask damages in respect of those two transactions—damages measured by the loss of profit which the pursuers have suffered. That profit, it appears, amounts to £953, 15s. 10d., and what I have to decide is whether the pursuers are entitled to that sum. On the whole, I am of opinion that they are; and

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I propose accordingly so to find, and also to find the pursuers entitled to expenses.”

The defenders reclaimed, and argued—The term “all your requirements” was an ambiguous one, which might have more than one meaning in a mercantile contract, and it was accordingly competent to prove the circumstances surrounding the parties, the character of their business, and their previous course of dealing in order to interpret the term— Bankof New Zealand v. Simpson, App. Cas. [1900], 182; Smith v. Thompson, 1849, 8 C.B. 44; Macdonald v. Longbottom, 1859, 1 E. & E. 977; Addison on Contracts (9th ed.) 44. “Requirements” had been held not to be equivalent to “demands,” but to what was needed for the purposes of an ordinary trade— North British Oil and Candle Company v. Swann, May 27, 1868, 6 M. 835, 5 S.L.R. 541. See also Pillans v. Reid & Company, December 17, 1889, 17 R. 259, 27 S.L.R. 211. If that were so, the evidence clearly showed that the pursuers' ordinary business in Manila rope was confined to the Faroe and Iceland trade, and that it alone was in the minds of the parties in making this contract. It was equally clear that the contracts which the pursuers had made and called upon the defenders to execute for them did not fall within their ordinary business requirements in this sense.

Argued for the pursuers—The contract contained no restriction, and there was nothing in it to support the limitations suggested. Was it legitimate to go outside it to show that the defenders did not intend to satisfy all the pursuers' requirements? It was legitimate to explain ambiguities, but here there were none. The pursuers did not ask the Court to construe requirements as “demands” in the widest sense of the word, but as demands for trade purposes. In the cases of Macdonald and the Bank of New Zealand, cited by the defenders, all that was done was to admit evidence to show what the thing sold actually was, the words of the contract being ambiguous, but that was not the case here. Even if on the analogy of the case of North British Oil and Candle Company v. Swann, supra, the word “requirements” was to be limited to “requirements for the purpose of their business as general traders,” the judgment of the Lord Ordinary was still sound. If the result of the proof was to show that the rope ordered under former contracts was in fact ordered for the purposes of the pursuers' Faroe and Iceland trade, that in no way proved that their ordinary business was limited to that trade. There was nothing to import such a limitation into any subsequent contract which did not expressly contain it. The transaction was merely one of the pursuers' ordinary business transactions, and the defenders took their chance of a rise or fall in the market price.

At advising—