Scottish Court of Session Decisions

At advising on 26th January 1951,—

LORD PRESIDENT (Cooper).—This action is a virtual replica of British Motor Trade Association v. Salvadori and British Motor Trade Association v. Naylor, in both of which the Association were successful in parallel circumstances in obtaining in England protection against organised infringement of the familiar motor car "covenant" scheme, introduced by them with the object of ensuring reputable trading in new cars. In this case the Lord Ordinary has allowed a proof, but we are now asked to dismiss the petition as irrelevant.

It is unnecessary to rehearse the features of the scheme or the obvious evils which it was designed to frustrate. I single out from the petitioners' averments the salient points of their indictment against the respondent. He is a motor dealer in business in Glasgow, and therefore presumably familiar with the conditions under which the postwar market in cars is conducted. In February 1948 he was placed upon the Association's "stop list" by reason of his conduct in breach of the rules relating to price protection; and this involved that no member of the Association (which means no reputable car manufacturer, importer or dealer) would thereafter do business with him. Between April 1948 and November 1949 he knowingly purchased nine different vehicles in breach of current covenants prohibiting the sales,

one of the sellers who sold in breach of covenant being a person named Mark Hutchison. In addition, while acting in concert with Mark Hutchison, he knowingly purchased five further vehicles from Mark Hutchison in breach of current covenants. The full details regarding the acquisition of these fourteen cars will only be discovered at a proof, but the averments sufficiently disclose a deliberate course of conduct, pursued over an extended period, and involving the carrying on as a business venture of what I may describe as a "black market" in cars, in wilful defiance of the Association's covenant scheme. The acceptance of the respondent's argument would mean that the respondent and others like-minded to himself are entitled so to proceed, and that the law is powerless to interfere. I do not think that it is.

The main issues which emerged from the admirable arguments presented to us came to be reduced to two in number:—(1) Is the contract embodied in the covenant illegal as being in restraint of trade ? (2) Even if it is not, have the petitioners relevantly averred a good cause of action by Scots law ?

(1) On the first issue I feel that there is great force in the petitioners' contention that this is not a contract "in restraint of trade" in the sense in which that expression is used in our law. The typical contract in restraint of trade is a contract by which some restriction is imposed which tends to deprive the community of the labour, skill or talents of men in the employments or capacities in which they might be most useful to the public as well as to themselves, and which may be on that account contrary to public policy. Now the motor car covenant imposes no restraint upon any trader. It is a contract between trader and customer, and the customer is envisaged, not as a person who buys for resale by way of trade, but as a person who buys in order himself to use and consume the subject of sale. The only restraint imposed by the covenant is a restraint on such a customer, and the covenant is neither more nor less than an effort by the whole body of car manufacturers and dealers to ensure that, during the present emergency conditions of the market, they will only supply new cars to persons who will use them, and that they will not supply new cars to speculators who wish to turn them over at inflated prices. I am unable to hold that such a contract is in restraint of trade so far as the parties to the contract are concerned. It was urged however that the trade which was restrained was the trade of the general body of second-hand dealers in cars. To this the short answer is that no second-hand dealer is a party to the contract, and that the accepted rules dealing with contracts in restraint of trade have invariably been confined to the effect of the contract as between covenantor and covenantee and as regards the public at large. Doubtless it is an incidental (and deliberate) consequence of the taking of covenants from all purchasers of new cars that the second-hand market is pro tanto restricted; but that is a consequence—and in my view a beneficial consequence—of the policy adopted by the Association, and not a direct result of any individual contract.

Even if I am wrong in this, I consider that, viewed as a contract in restraint of trade, the covenant is not on that account illegal. The test may best be taken from the speech of Lord Macmillan in Vancouver Malt Co., where his Lordship was quoting from Lord Birkenhead, L.C., in M'Ellistrim:

"A contract which is in restraint of trade cannot be enforced unless (a) it is reasonable as between the parties; (b) it is consistent with the interests of the public."

I have heard nothing to show that the covenant does not fully satisfy both these conditions, and it is therefore enforceable as between the parties to it.

(2) The second issue raises at the outset a point of importance which the respondent felt unable to argue but to which nevertheless I desire to advert, viz., whether it is or may be an actionable wrong in Scotland for a third party to induce the breach of such a contract as that now in question. In England the answer is clearly in the affirmative; but in Scotland it so happens that until recently the only illustrations of the rule were found in relation to contracts of service, and the view has been hazarded that with us the doctrine is confined to the contract of service, and finds its origin in the primitive rights of property once recognised in the services of a servant, and originally in the servant or serf himself. But the rule is subjected to no such limitation as formulated in Glegg on Reparation; and in Findlay v. Blaylock the rule was extended to promise of marriage. Lord Normand said in general terms:

"It is no doubt true that, if a person, knowing that another person has a contractual relation with a third party, induces that person to break that contractual relation, he may be liable to the third party whose contract in consequence of his action is thereby breached. There are illustrations of that both in Scotland and in England,"

and his Lordship then went on to cite from one of the leading English decisions. Lord Fleming and Lord Moncrieff proceeded upon the same view. In Crofter Hand Woven Harris Tweed Co.several of the learned Lords, in dealing with a related question, assumed that the wider rule applied to Scotland. In these circumstances I am prepared to affirm expressly that it is only by accident that the Scottish illustrations have centred around the contract of service and the wrong of "harbouring servants," that these are only instances of the wider rule, and that on principle the wider rule, as more fully developed in England, must be considered as part of the law of Scotland. It remains to consider the precise form and limitations of the wider rule, for even our own decision of Findlay v. Blaylock shows that in some situations a third party may lawfully induce the breach of a contract between two other persons.

The classic pronouncement on the subject is in the speech of Lord

Macnaghten in Quinn v. Leathem, where he said that "a violation of legal right committed knowingly is a cause of action, and … it is a violation of legal right to interfere with contractual relations recognised by law if there be no sufficient justification for the interference." The rule was repeated in the same terms by Lord Haldane in Jasperson v. Dominion Tobacco Co. Its essence is to be found in knowing and unjustifiable interference. The application of this foundation principle to a case such as the present was discussed at length by Roxburgh, J., in the case of Salvadori, and I am content to adopt that learned Judge's observations mutatis mutandis. The suggestion that "sufficient justification" for the respondent's conduct can be found in his own self-interest seems to me to be manifestly untenable, for such an exception would empty the rule of all intelligible content. Equally it is plain as a matter of averment that the petitioners have a legal interest to claim the remedy which they seek in the fact that they are a trade union which is deeply concerned in maintaining and enforcing as uniformly as possible the scheme they have devised for the benefit of their members and of the public generally—indeed that the covenant scheme may fairly be described as their raison d'être—and that the respondent's efforts to break the scheme, if successful, must inevitably inflict damage upon them.

In these circumstances I consider that we should adhere to the interlocutor of the Lord Ordinary. But as the prayer, in terms of which an interim interdict is standing against the respondent, is not framed with the precision on which we are in use to insist in a decree for non-compliance with which grave consequences may ensue, I am of opinion that we should afford the petitioners an opportunity of proposing amended terms.

LORD RUSSELL .—The British Motor Trade Association, certified as a trade union, includes among its members all British motor car manufacturers and importers of foreign cars, and all their accredited distributors and dealers. It has brought the present petition for suspension and interdict against the respondent, who carries on business as a motor car dealer in Glasgow. The Association's complaint, on which their crave for interdict is based, is against past actings by the respondent which are alleged to constitute the procuring of the breach of various contracts to which the Association is a party, causing damage to the Association, and against a threatened future continuance of such actings by the respondent. Each of the contracts of which the respondent is said to have procured the breach is a printed document and conforms to a standard pattern, whose main provisions are quoted in the Lord Ordinary's opinion. In form the contract, referred to in the pleadings as a covenant, bears to be a tripartite agreement, in which the purchaser (from a dealer) of a new

car in effect undertakes to the Association and to the dealer that for a period of twelve months from the date of purchase he will not use the car or permit its use for any purpose other than his private, professional or business purposes; and that he will not during that period dispose of it by sale, hire, or otherwise.

In their averments the Association explain how and why in August 1946 in the interests of their members and of the intending purchasers for use of new cars in the United Kingdom market they introduced the so-called "covenant scheme." It was introduced in an effort to prevent or discourage speculators from obtaining by purchase new cars and reselling them immediately at inflated prices to bona fidepurchasers for use in a market which was notoriously affected by scarcity of supply. It is, as I believe, a matter of common knowledge that prior to the introduction of the scheme the operations of speculators, who contrived to obtain new cars for immediate second-hand resale, had resulted in their obtaining from bona fidepurchasers for use very much higher prices than the manufacturers' listed price of similar new cars. Following the introduction of the covenant scheme, every retail purchaser of a new vehicle or chassis from an accredited dealer was required to enter into a covenant containing the undertaking aforesaid, and did so. In support of their plea that the respondent has engaged in actings which constitute the procuring by him of breaches of contract, the Association specifies (in articles 6 and 7 of the condescendence) fourteen instances of purchases by the respondent of vehicles, subject in each case to a covenant, prior to the expiry of the disposal time-limit. It is averred that the respondent participated in each of these transactions in the knowledge that the sale to him of the vehicles was made in breach of such a covenant, nine of such being purchased by himself alone, and the remaining five being purchases made by him from and in a course of dealing carried out by him in concert with another named person. The specification of these respective transactions is, in the circumstances averred, in my opinion, adequate to give fair notice to the respondent of the case sought to be made against him. The Lord Ordinary, having granted interim interdict, allowed to parties, after debate, a proof of their averments. That interlocutor is brought under review in this reclaiming motion, in which the respondent has submitted that the petition should be dismissed as irrelevant on one or other or both of those grounds viz.:—(a) that the covenants of which the respondent is alleged to have procured the several breaches are not enforceable in law because they are in restraint of trade; (b) that, estothat the covenants are enforceable, the averments by which it is sought to establish that the breach thereof was procured or induced by the respondent are not relevant to infer either that the respondent did so act or that, if he did so act, he perpetrated an actionable wrong.

With regard to the first submission—legal invalidity in respect of restraint of trade—I am of opinion that it is not well founded. The obligation on "the dealer," as a party to such a covenant, to obtain his purchaser's consent to grant the undertaking does not in the circumstances restrict or hamper that dealer's activities in effecting the sale of new vehicles. The only material restriction imposed on any of the parties is imposed on the purchaser who buys the vehicle for use and not for its commercial disposal by way of trade; and the limitation of the purchaser's freedom to deal, otherwise than by use, with the purchased vehicle endures only for twelve months. I am unable to discover any restraint of trade in the imposition by a seller of such a condition on the buyer of an article for use, and no case was cited in which such a condition, imposed in such circumstances on one who buys a chattel for use and not for commercial trading, has been held to amount to a restraint of trade. It was maintained, however, that the effect of such a covenant on the class of traders who deal in the second-hand car market is to restrict the number of vehicles coming into that market and so to operate as a diminution of the potential turnover available for those who deal in that market. It is true that each covenant, when complied with, results in the erection for twelve months of a barrier against a single vehicle's entry to the second-hand market; but cumulatively the twelve months' time-lag created in a year by the operation of covenants will reduce the potential inflow to the second-hand market during that year. Such reduction may to some extent be offset by the sale in the second-hand market of old cars belonging to those who have been successful in obtaining a new car and who for that reason are enabled to dispose of the old cars; but I agree that the net result will be to lessen the potential turnover in the market in which second-hand dealers trade. It thus appears that the Association's resort to the covenant scheme, as an integral part of its trade policy, does to a limited extent and for a limited period restrict the trade of the class of second-hand dealers. Even so, not every contract which restrains the trade of a relatively small group of traders is legally invalid and incapable of being enforced. If such a contract (1) is reasonable as between the parties to it, and (2) is consistent with the interests of the public, then it is enforceable. In my opinion the covenant under challenge complies with both those conditions. No second-hand dealer, as such, is a party to the covenant. The post-war scarcity of new cars available on the home market was and is such that manufacturers could have adopted a policy of selling to the highest bidder. The covenant scheme was calculated to ensure that new cars would be obtainable by bona fide purchasers for use, and not by speculators; and would be obtainable at a reasonable price. I am clearly of opinion that the scheme is reasonable as between the parties to the covenant in affording protection to the party in whose favour it is imposed and that it is at the same time in no way injurious to the public.

The second part of the reclaimer's argument was prefaced by counsel by an admission that by the law of Scotland an actionable wrong is committed by one who intentionally and without lawful justification induces or procures some one to break a contract made by him with another, if damage has resulted to that other, provided that the contract creates contractual relations recognised by law. The principle so stated is well established in the law of England and has been affirmed and applied frequently in English cases in the House of Lords. As has been pointed out by your Lordship, there have been few cases in Scotland in which such a principle has been applied and these have related to contracts of service; and it seems desirable that, before giving express judicial affirmation to its recognition as a general principle, we should consider the legal basis on which it rests. Your Lordship has reviewed the matter in the light of such Scottish authority as is available; and I agree with the conclusion at which your Lordship has arrived in affirming that the principle as stated is part of the law of Scotland. In that situation the question remains whether the Association's averments are relevant to infer that the respondent's actings were (1) intentional, (2) without lawful justification, (3) productive of damage to the Association, and (4) a procuring or inducement of the breach of the several covenants. I shall deal briefly with each of those elements. I am satisfied that the averments are relevant to infer a deliberate course of conduct pursued by the respondent, in the knowledge that the vehicles purchased by him were sold in breach of the covenant, and with the intention nevertheless of acquiring them—that is, intentionally. Further the only lawful justification suggested—self-interest based on his right to trade in the second-hand market—does not, in my opinion, amount to lawful justification. Moreover the partial defeat of the Association's covenant scheme, introduced for the benefit of its members and in the public interest, is prima facie prejudicial to the activities and the objects of the Association, and the averments of damage thereby caused, are, in my opinion, relevant for inquiry. Finally I am of opinion that the actings averred are relevant to infer a procuring or inducement of the breach of the several covenants that are alleged to have been broken. On this topic I am prepared respectfully to adopt the reasoning of Roxburgh, J., in the opinion delivered by him in Salvadori; and I agree with the Lord Ordinary in holding that the reasoning and the conclusion of Roxburgh, J., directed to a precisely similar topic, should be followed and applied in this case with the result of rejecting the reclaimer's argument against the relevancy of the averments in question.

I am therefore for refusing the reclaiming motion; and, subject to amending the terms of the interim interdict so as to make its content

more specific, as seems necessary, I am for adhering to the Lord Ordinary's interlocutor.

LORD KEITH .—I am content to express my concurrence in the judgment proposed, subject to a reservation on one point which is not, in my opinion, essential to that judgment and on which I entertain some doubt, and to an observation on the question of damage.

It was suggested that the plea of restraint of trade had no place here because it was a plea competent only to one of two contracting parties who had entered into a contract which operated to impose on one or other such a restraint. This may be, however, to limit too narrowly the ambit of the plea. It was competent for instance at common law to challenge the right of a trade union to take any action in the Courts to protect its property or rights on the ground that it was an illegal association at common law as being formed in restraint of trade. Why then is it not open to a third party to challenge a contract as a contract illegal for restraint of trade when he is sued for interfering with such a contract ? I should have thought that any illegal contract could be challenged by a person who was sued for procuring its breach and this seems to have been the view taken in De Francesco v. Barnum . I find it unnecessary, however, to answer this question because the contract in this case is not, in my opinion, bad for restraint of trade. It is, I consider, not only reasonable as between the parties to it but also consistent with the interests of the public and, indeed, I think positively in the interests of the public. Accordingly it is sufficient for the disposal of this case that the plea of restraint of trade fails on this ground.

As to proof of damage, it was conceded, I think rightly, that some damage must have been caused before an action for procurement of breach of contract can be raised, even if only an action of interdict. Damage in other words is of the essence of the wrong. But proof of specific damage is not required. Where breach of contract has been procured by a third party some damage will readily be inferred. An object of the Association here is to limit the price at which new cars may be sold by dealers to the public. If cars are resold, almost immediately after purchase, by members of the public, at greatly inflated prices, manufacturers and dealers are not going voluntarily to limit their selling prices. The natural and probable consequence is that they will withdraw from the Association, and regain freedom of bargaining power with the public or with each other, with inevitable damage to the Association. Whether this is the damage which the pursuers envisage I do not know. But it is sufficient that the pursuers have averred damage, albeit in general terms. They are entitled, in my opinion, to prove this averment.