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Scottish Sheriff Court Decisions
You are here: BAILII >> Databases >> Scottish Sheriff Court Decisions >> Marjandi Ltd v. Bon Accord Glass Ltd [1998] ScotSC 55 (15 October 2007)
URL: http://www.bailii.org/scot/cases/ScotSC/2007/55.html
Cite as: [1998] ScotSC 55
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SHERIFFDOM OF GRAMPIAN HIGHLAND AND
CA/06
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JUDGMENT
of SHERIFF J K TIERNEY |
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in the cause |
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MARJANDI LIMITED |
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Pursuers |
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against |
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BON ACCORD GLASS LIMITED |
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Defenders |
Act: Smith, Advocate; instructed by Paull &
Williamsons.
Alt:
Merson , Advocate in
The sheriff, having resumed
consideration of the cause, Finds in Fact:-
(Findings 1 - 26 and 28 are taken
from the Joint Minute of Admissions)
1. The pursuers are a company
incorporated under the Companies Acts on 19th April 1990.The
defenders are a company incorporated under the Companies Acts with their
registered office and place of business in
2. From in or around April 1997 to in or
around August 2005, the pursuers were sales agents for the defenders. The pursuers, through their employee Ian
Park, devoted their whole time to representing the defenders in their
conservatory division. The pursuers had no written contract with the defenders.
3. The defenders' principal place of
business is at Bon Accord House,
4. The defenders' conservatory division
provides inter alia conservatories,
sun lounge extensions (hereinafter extensions), windows and doors to
customers.
5. The defenders used the services of
other sales agents in their conservatory division throughout the period when it
used the services of the pursuers in that division.
6. Some of the sales agents (including
the pursuers) negotiated contract with customers on behalf of the defenders for
the provision of conservatories and extensions.
Other sales agents negotiated contracts with customers on behalf of the
defenders for the provision of windows and doors. Virtually all of the contracts with customers
for the provision of conservatories and extensions were negotiated and
concluded by sales agents acting on behalf of the defenders.
7. The sales agents, including the
pursuers, had authorisation from the defenders to negotiate contracts with
customers on their behalf and to allow a discount on the price for said
contracts up to a maximum level of 20%.
8. Sales agents, including the pursuers,
were paid for their services by the defenders by way of commission. The commission was paid in two stages. The first 50% of commission was due to be
paid by the defenders to the agent when the agents supplied to the defenders a
signed and completed contract from a customer.
The second 50% of the commission was due to be paid once the defenders
had completed the job and the job had been paid for in full by the customer.
9. The conservatories were branded by
the defenders as their own product.
10. The contracts entered into between
the defenders and their customers in relation to conservatories and extensions
included terms under which the defenders obliged themselves inter alia (a) to provide and submit
drawings for planning permission and building warrant inclusive of structural
engineer design certificate and (b) to construct the conservatory or extension
to each individual customer requirements.
The contract between the pursuers and the defenders was inter alia for the pursuers to negotiate
these contracts with customers for conservatories or extensions on behalf of
the defenders.
11.
Enquiries
for conservatories or extensions were usually made by customers in the first
place directly to the defenders by telephone.
Such telephone enquiries accounted for 80 to 85% of enquiries made. Such an enquiry would come (a) from a
prospective customer who had seen a
conservatory or extension in which a sales agent had been involved; (b) as the result of a personal
recommendation from the defenders or their agents; (c) as a referral from a pre-existing
customer or (d) from a prospective customer who had no previous knowledge or
dealings with the defenders or their agents.
On the defenders receiving such an enquiry, one of their employees fixed
an appointment for a representative to visit the customer's house to discuss
the customer's requirements. The enquiries
were logged on a database. The enquiries
were normally allocated to sales agents of the defenders by Martin Allan
(himself an agent of the defenders). Mr
Allan, or an employee of the defenders, would then contact the pursuers or one
of the other three sales agents who dealt with conservatories and extensions,
and request them to attend the appointment which had been made. The agent concerned had the choice of
accepting the appointment or not but was expected to attend if available. The sales agent would attend the appointment
unless he had another commitment. If an
agent was unable to attend the appointment then the defenders would offer the
appointment to one of the other agents.
Agents would attend virtually all of the appointments offered to them.
12. Some enquiries for conservatories or
extensions came direct to a sales agent who was located at the defenders'
showroom at Dobies Garden Centre. Such
enquiries accounted for around 15% of enquiries made. Telephone enquiries rarely came direct to a
sales agent. Enquiries at the showroom
at Dobbies Garden Centre were normally dealt with by a sales administrator who
would deal with prospective customers to the point of making an appointment for
an agent to visit the customer at home, which appointment would be allocated to
one of the agents by Martin Allan.
Sometimes if a customer had technical questions and an agent was at the
showroom, the sales administrator might ask the agent to speak to the customer. If he did so and an appointment was made, this
was sent to Martin Allan for allocation.
Normally in practice, such an appointment would be allocated by Martin
Allan to the agent who had already met the customer. If the sales administrator was otherwise
engaged an agent at the showroom might on occasion speak to a customer at first
instance and make an appointment which was sent to Martin Allan for
allocation. Again, in practice, such an
appointment would normally be allocated to the agent who had already spoken to
the customer. The defenders expected
sales agents to be available at the showroom if there was no sales
administrator available. This occurred
from time to time when holiday cover was required or sales administrators were
absence from work through illness.
13. The pursuers, through the services of
their employee Ian Park, would meet the customers to discuss with them their
particular requirements and advise them of their options. Having ascertained the customer's
requirements, Ian Park then gave the defenders all of the details and a sketch
plan from which the defenders were able to translate the design information
obtained by the pursuers into a standard drawing format showing the pursuers
proposed design. A small minority of
customers supplied architects' drawings for the proposed design. The pursuers prepared a price quotation from
information and prices which were mostly supplied by the defenders.
14. The defenders employ sales
administrators, drawing office staff, surveyors, builders, joiners, a painter
and a site manager. They also use
sub-contractors. They do not carry out
plumbing work, electrical work or the installation of felt or fibre glass
materials for flat roofs. If the
customer's proposed design required any of this work the pursuers included
quotations from relevant tradesmen and incorporated these quotations into the
overall price. The defenders have a
number of sub-contractors who they regularly use for these types of work. They have negotiated fixed prices with
plumbing and electrical sub-contractors for certain standard types of
work. The information concerning these
prices was available to the pursuers and would be incorporated by them into the
overall price to be quoted to the customer.
If the customer wished to have work of these types for which there was
not a fixed price a quotation from one of the sub-contractors for this work
would be obtained and included by the pursuers in the overall quotation.
15. Having obtained all the necessary
information and having prepared a price quotation, the pursuers through Ian
Park then discussed the detailed drawing and the proposed price with the
customer. Having seen the proposed plans
the customer would, on occasions, ask for amendments. If so, the pursuers would arrange for the
drawing of the proposed design and price to be amended accordingly.
16. The pursuers used price information
supplied by the defenders to formulate the quotations given to customers but
had authority to negotiate discounts with the customers. The commission paid to the pursuers by the defenders
was calculated on a basis which was dependent on the price which was agreed
with the customer and the amount of discount which was agreed by the pursuers
on behalf of the defenders.
17. The defenders have a style document
for contracts for extensions and conservatories. This is No. 6/1/1 of process. A style document was used by the pursuers and
other agents as the basis for the preparation of a written contract to be
entered into with each customer. Once
the contract was agreed and there were no further amendments to the work scope
by the customer, it was the responsibility of the defenders to implement the
contract. The construction of the
conservatory or extension was carried out by the defenders' employees and
sub-contractors according to the design approved by the customer. Examples of these contracts are the contracts
between the defenders and (a) Mr & Mrs Parker (No. 6/1/2); (b) Mr & Mrs Farquharson (6/1/3); (c) Mr
& Mrs Riddell (6/1/4); (d) Doctor
& Mrs Warnock (6/1/5); (e) Mr &
Mrs Warman (6/1/6) and (f) Mr & Mrs Brodie (6/1/7).
18.
The
defenders' style contract for sun lounges and conservatories (
19. Each of the individual contracts
lodged (productions
20. The contracts entered into between
the defenders and the customers through the medium of the sales agents would
typically involve the construction and installation of foundations, walls,
floors, windows, doors, roof ceilings, electrical services, plumbing and
heating services, plastering, painting and other building and construction work
according to the customer's requirements.
The defenders do not manufacture windows or doors. The frames for any window or door required
for a contract were manufactured by a sub-contractor of the defenders based in
21. Brochures and other marketing and
promotional materials bore the name of the defenders. It was unusual for promotional material to be
supplied direct by the defenders to customers.
The defenders' business was built up primarily through word of
mouth. Promotional material was seldom
used. When it was used it was usually
distributed by agents including the pursuers.
The pursuers had, on occasion, hand- delivered leaflets to customers and
prospective customers. When doing so,
the pursuers' employees' business card was supplied as well by being attached
to the leaflet. On occasion, employees
of the defenders also distributed leaflets. Between June 1998 and March 2002, vehicles
driven by the pursuers' employee, Ian Park bore the defenders' logo. The pursuers prepared photo albums of
previous conservatories to show to customers to promote the sale of
conservatories. They used photographs
supplied by themselves of jobs they were involved in and on occasion other jobs
completed by the defenders.
22. The other three sales agents of the
defenders for conservatories and sun lounge extensions had similar contractual
relationships with the defenders as did the pursuers. They had no written contract. If a particular sales agent had dealt with
the customer before the practice was that the customer would usually be
directed to that sales agent again.
Sometimes prospective customers asked for a particular sales agent. Customers were referred to sales agents on a
sensible logistical basis by taking account of, among other things, where the
sales agents lived and where the customers lived. There was no agreement between the pursuers
and the defenders, or between the defenders and any of their sales agents,
limiting the number of sales agents with which the defenders could have similar
contractual arrangements at the same time.
In recruiting sales agents, the defenders took account of their business
needs and the number of sales agents they used.
Throughout the existence of the conservatory division of the defenders
there have been three or four sales agents including the pursuers. There was no agreement between the pursuers
and the other sales agents as to the allocation of potential customer enquiries
among the agents. It was at the option
of the defenders to whom they referred any enquiry. There was no agreement regarding geographical
demarcation in relation to the referring of customer enquiries to sales agents
23. As a result of the of the activities of the pursuer as agent of
the defenders goodwill was generated in the defenders business which goodwill accrued
only to the benefit of the defenders.
24. On
Finds in Fact and in Law:-
(1) The contracts
entered into by the defenders with their customers through the agency of the
pursuers and the other agents were all single contracts for the construction of
a conservatory or extension attached to an existing building erected on land
belonging to persons other than the defenders. In the course of these contracts
the defenders required to supply and utilise in the works items of moveable
property which on being incorporated into the works became the property of the
owners of the land and buildings. There
was no separate contract of sale in respect of the items of moveable property,
and ownership in these items transferred from the defenders to their customers
by accession and not by virtue of a contract of sale of goods.
(2) The pursuers did
not have continuing authority to negotiate the sale or purchase of goods on
behalf of the defenders, or to negotiate and conclude the sale or purchase of
goods on behalf of and in the name of the defenders and accordingly were not
commercial agents for the purposes of the Commercial Agents (Counsel Directive)
Regulations 1993.
Finds in Law:-
(1) The pursuers are not due to receive
payment in lieu of notice by the defenders in accordance with Regulation 15 of
the said regulations.
(2) That the pursuers are not due damages
for breach of contract in accordance with Regulation 15 of the said
regulations.
(3) The pursuers are not entitled to payment
of compensation in accordance with Regulation 17 of said regulations.
THEREFORE SUSTAINS the defenders' 1st, 2nd and 3rd
pleas-in-law and REPELS the
pursuers' 2nd, 3rd, 4th, 5th, 6th
and 7th pleas-in-law; ASSOILZIES the defenders from craves 2,
3, 4 and 5; EXCLUDES from further probation the pursuers' averments contained
in condescendences 11 and 12. APPOINTS parties to be heard on further
procedure in respect of crave 1 at a case management conference and to be heard
at said conference on the question of expenses and fixes
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NOTE
1.
In
this commercial action the pursuers
claim:- (i) commission in respect of contracts which they negotiated on behalf
of the defenders with various customers, both in terms of the contract between
the pursuers and the defenders and under regulation 7 of the Commercial
Regulations (Council Directive) Regulations of 1993; (ii) an order against the
defenders in terms of regulation 12(2) for the provision of information to
enable the pursuers to check the amount of commission due to them; (iii) payment of commission due in terms of regulation
8; (iv) payment in lieu of notice in terms of regulation 15 and (v) compensation
for termination of the agency agreement in terms of regulation 17
2.
The
parties helpfully entered into a joint minute of admissions setting out all of
the facts which they considered relevant most of which have been made the
subject of findings in fact. .
3.
There
were two issues which were the subject of submissions before me on the basis of
the agreed facts namely
(1)Were the pursuers
commercial agents within the meaning of the Regulations and
(2) If the pursuers were
commercial agents were their activities as commercial agents to be considered
secondary in accordance with the provisions of the Schedule to the Regulations.
Were the pursuers commercial agents
4.
"Commercial
agent" is defined by regulation 2(1) as follows:-
""Commercial
agent" means a self-employed intermediary who has continuing authority to
negotiate the sale or purchase of goods on behalf of another person (the
principal) or to negotiate and conclude the sale or purchase of goods on behalf
of, and in the name of that principal, but shall be understood as not including
...." (none of the exclusions is relevant
in the current case) The definition is taken from Council Directive 86/653 on
the co-ordination of the laws of member States relating to self-employed
commercial agents.
5.
Accordingly,
the first and critical question is whether the activities of the pursuers in
furtherance of their relationship with the defenders brought them within the
statutory definition. There was no
dispute that the pursuers were self-employed intermediaries, and there was no
dispute that they engaged in negotiating contracts on behalf of the defenders. .The
only issue is whether the contracts which the pursuers negotiated on behalf of
the defenders were contracts for the sale and purchase of goods.
The pursuers'
submissions
6.
Counsel
for the pursuers submitted that these were commercial contracts and that they
required to be interpreted in a business context - they needed to be given
commercial commonsense. (Investors Compensation Scheme Limited v West
Bromwich Building Society [1998] 1 All ER 98). He submitted that in characterising the
nature of the transactions it was important to look at the substance of these
transactions rather than the form. In
particular, he pointed out that conservatories to be built were branded as
Bon-Accord products, that the defenders provided the conservatories, that the
pursuers were sales agents of the defenders, that the defenders undertook the
design of the conservatories and also the provision of materials, and that the
services insofar as they were provided by the defenders were not independent of
the product but were exhausted in the creation of the product. Looking at these factors, the parties to the
contracts could truly be seen as entering into a contract for the sale and
purchase of goods.
7.
Looking
at the terms of the contract, the form of words was that the defenders were
providing "works" to the customer but the description of what was to be
provided not only described the works that were to be done but itemised the
product that was to be produced. He
sought to differentiate between a traditional procurement contract which might
be seen as a contract of locatio operis
faciendi and contracts such as those entered into
between the defenders and their customers
for which that classification was not necessarily appropriate. He referred
to paragraph 6 of the chapter on Building
Contracts contained in volume 3 of the Stair Memorial
Encyclopaedia. He submitted that in a
contract such as the defenders', it made sense to disaggregate the respective
contributions of different persons involved in the contract, including
sub-contractors, and to disaggregate work and materials. He submitted that the true question was what
was principally being done. He likened
the transaction to the purchase of a suit from a bespoke tailor. The tailor would go to work on the raw
material, the cloth, but at the end of the day the result would be a suit that
was available for sale. While
recognising arguments arising out of the law of accession he considered that
the position in respect of accession was made weaker by the fact that it was
not clear in a situation such as this when individual items of property acceded
to the land. He submitted that property
transferred at the time the work was completed and payment was made. In the modern context he said that it was
increasingly the case that the contractor took the sole responsibility by
designing and constructing a "thing" which then was transferred to the
customer.
8.
He
raised the issue of branding products - the conservatories were known as
Bon-Accord products and bound up in this was goodwill which was attributed to
the product and to the principal's business.
This made it all the more appropriate to see the contract as one for
sale of goods. The issue of goodwill was
important. It was what lay behind the Regulations and they should be
interpreted with a purposive approach to provide the protection they were
intended to provide.
9.
Finally
he submitted that the services were exhausted in the supply of the product and
that it was the product that was transferred.
The pursuers were acting as agents for the defenders to bring about the
supply of the product and the services which were provided were only provided
as a means towards that end.
The defenders'
submissions
10. The solicitor for the defenders
submitted that the pursuers were not commercial agents as defined by regulation
2(1) because they did not negotiate the sale and purchase of goods. They did negotiate contracts on behalf of the
defenders, but these contracts were not for the sale of goods. He went through the individual contracts
pointing out that the defenders clearly submitted a "quotation for works" and
analysed what each contract required the defenders to do. Looked at properly it could be seen that what
the defenders were offering to do was to carry out building work, they were
providing services, they were not selling goods.
11. He too referred to the chapter in the
Stair Memorial Encyclopaedia, referring to paragraph 6 and also to paragraph 5 which
highlighted the difference between employment contracts and contracts for the
doing of work to a thing or with materials.
He pointed out that the authors of the Stair Memorial article, in
paragraph 6, identified three different types of contracts, characterising
building contracts as contracts of location.
They were contracts for work to be done on a site. That fitted the contracts which were under
consideration. A contract for design and
build involved the provision of two services namely the architectural design
services and the hire of works. There
was no element of sale. If you took the
pursuers' argument to extremes, building a full size office block would be a
contract for the sale of the various materials used.
12. He referred to Bowstead &
Reynolds on Agency, the 17th edition paragraph 11-014; Christou on
International Agency Distribution and Licensing Agreements, paragraph 3.46 and
3.47; Randolph & Davie, Guide to the
Commercial Agents Regulations, paragraphs 5.8 and 5.9; The Department of Trade & Industry
Guidance Notes, The Sale of Goods Act, Section 61, The EC Directive itself, and
Commission of the European Communities v The Italian Republic (ECJ case 7-68), Tamarind International & Others v
Eastern Natural Gas [2000] EU - LR 708, and Gailey v Environmental Waste Controls [2004] EU - LR 423. All of these authorities he submitted pointed
clearly to the protection being afforded to agents who were engaged in the sale
of goods not in the provision of a contract for works to be carried out.
13. He submitted that for the purposes of
the Regulations there were only two types of agents namely those who entered
into or negotiated contracts for the sale of goods and all other agents. Only the first category came within the scope
of the Regulations. He referred to the
potential justification for this separation referred to by Lord Drummond Young
in paragraph 24 of Gailey
namely that principals who provide services are more likely to come into direct
contact with the customers and thus goodwill can more readily be accepted as
belonging to the principal, which he said clearly applied in this case where
there was a lot of close contact between the principal and the customers, with
the agent effectively moving out after the contract had been made. An alternative justification was the
protection of the reputation of those involved - in this case the reputation
was that of the principal. Eighty to
eighty-five per cent of the business came by telephone calls direct to the
defenders. Customers relied on the
defenders' reputation as the builders of conservatories rather than the
pursuers' reputation as good negotiators of contracts - which is what in this
case the agent's basic function was..
The pursuers' response
14. In response counsel for the pursuers
submitted that nothing should be taken from the fact that goods were being
connected to the building - many goods could fall into this category. So far as the various services were concerned
such as excavation these were either exhausted in the production of the end
product or were ancillary to it. He
referred to paragraph 3 - 49 of
Christou where the author
suggests that where there are mixed contracts for the supply of goods and
services that a possible commonsense rule could be to hold that where the
agency agreement relates to the supply of goods with the provision of ancillary
services (for example contracts for the supply of plant and machinery together
with a contract for installation or maintenance) the directive should apply. He submitted that building contracts were not
a precise legal category. He referred to
the quotation from Lord Diplock which appeared at page 1-01 of Keaton on
Building Contracts "A building contract is an entire contract for the sale of
goods and work and labour for a lump sum price payable by instalments as the
goods are delivered and the work is done".
(Modern Engineering v Gilbert Ash
1974 AC 689). He submitted that the defenders were being driven to an extreme
position saying that the contract was not "a contract for the sale of goods" -
the true focus should be what goods were being sold under the contract. He submitted there was a difference between
traditional building contracts where a contractor followed the instructions of
the architect and a design and build contract where one party does the whole
work.
Decision
15. The joint minute and the contents of
the agreements lodged (
16. I was referred by both parties to paragraph
6 of the chapter on Building Contracts in the Stair Memorial Encyclopaedia
which refers to the longstanding difficulty, at least since the time of Gaius,
in distinguishing between contracts for work and materials on the one hand and
contracts of sale,. What Gaius says in
his Institutes at Book III, para 145 is:-"Purchase and sale and leasing and
hiring are considered to be so nearly related to one another that in certain
cases the question arises whether the contract is one of purchase and sale, or
one of leasing and hiring".
17. He gives, at para. 146, the example
of the use of Gladiators:-
"If I deliver
Gladiators to you under condition that 20 denarii shall be paid to me for the
exertions of every man who issues safe and sound from the arena; and a 1,000 denarii for everyone who is
killed or disabled; the question arises
whether a contract of purchase and sale, or one of leasing and hiring has been
made. The better opinion is that in the
case of those who come forth safe and sound are contract of leasing and hiring
was concluded; but so far as those who have been killed or disabled are
concerned the contract is one of purchase and sale, for it is apparent that the
contract depends upon circumstances taking place as it were under a
condition; a contract of sale or hiring
having been entered into with reference to each Gladiator".
18. In paragraph 147 he says:-
"Likewise
where it is agreed upon between a goldsmith and myself that he shall make me a
number of rings of a certain weight and style out of his own gold and shall
receive for example, 200 denarii the question arises whether a contract of
purchase and sale or one of leasing and hiring is made. Cassius says that the material is the object
of the purchase and sale but that the labour depends upon a contract of leasing
and hiring; still the greater number of authorities are of the opinion that the
contract is one of purchase and sale.
But if I furnish him with my own gold and the price of the work is
agreed upon it is settled that the contract is one of leasing and hiring".
19. The authors of the article in the Encyclopaedia
also refer to passages in the first volume of Bells Commentaries. At pages 193 to 194, under the heading of "Transfer
of goods in the seller's own possession",
"But
if I contract with a builder and he procures the materials, are those materials
when laid down on my ground or deposited in my sheds actually delivered
although that final act, which was to close the workman's undertaking and to
complete the transfer of the particular materials, is unperformed? . .... In cases of this kind the determination
may often be difficult; but probably a distinction would be made between
vendition when simple, and when complicated with the contract of locatio operarim. Wherever the contract is fairly
resolvable into simple vendition the possession of the thing ordered, the
delivery of it upon the premises of the vendee, seems to be sufficient as an
absolute and perfect transference.
Where, again, it is resolvable into a contract for performing a
particular act or piece of labour, of which the articles sent are merely the materials,
the act of delivery seems not to be complete till the work be performed".
20.
At
pages 275 to 276 he says:-
"...
but it has already been observed [at page 194] that difficulties often arise
from the complication of this contract of locatio
operis faciendi with that of sale.
It is strictly requisite to the contract of the hire of work, when
simple, that the locator or person who hires the labour should furnish the materials,
the conductor only the labour; and in this case the property of the material
remains with the locator, unaffected by the conductor's temporary possession of
them while he is finishing the work.
Where the conductor furnishes the materials or even the principal
materials, as well as the labour, it is more strictly sale than location in
which the tradition seems to be completed only by the delivery of the perfect
work".
21. Whilst
22. The solicitor for the defenders
referred me, in addition to paragraph 6 of the chapter in the encyclopaedia, to
paragraph 5 where
"The
contract of hiring of labour is an engagement on the one part to perform
certain work or to labour during a certain term in consideration of a certain
hire; on the other part to pay that hire.
It applies to common labour, to skilled labour, to care and
custody, to carriage".
Paragraph 147 continues:-
"This
strictly is an engagement to do certain work on materials furnished to the
workman, the material being bailed or delivered to the temporary possession of
the workman to have the labour bestowed on it.
Where the thing is to be prepared of materials to be furnished by the
workman (as in the general case of manufacturers) the contract partakes
of sale.
23. The note to this paragraph cites Pothier,
Treatise on the Contract of Hire, no. 394.
This paragraph is also cited by the authors of the chapter in the
Encyclopaedia in a footnote where they
say :- "Pothier's chapter on louage
d'ouvrage seems indeed to take building contracts as the prime example of
such contracts".
24. What Pothier said in his Treatise,
Seventh Part, No. 392 is:-
"The contract for hire of work is a contract by which one of
the contracting parties gives to the other certain work to do; the second party
undertakes to the first party to do the work for the price agreed between them
for which the first party, who has given the work to do, undertakes to
pay. The party who gives the other the
work to do is called the locator - locator
operis faciendi - the one who undertakes to do the work is called the
conductor - conductor operas. We
shall see in the first chapter what is the nature of this contract and what are
the three necessary elements for its formation."
25. In the first chapter, No. 393, he
differentiates between the contract for the hire of work and the contract for
hire of a thing, namely that in the latter it is the use of a thing for a
certain price which is the subject matter of the contract whereas in the former
it is the work to be done which forms the subject matter. In one, the thing is given to be used and in
the other it is given to be worked on. In hire of things the conductor has to
pay; in hire of works the locator.
26. Dealing with the contract of hire of
works, he says at No. 394:-
"This contract has much in common with the contract of
sale. Justinian in his Institute says ....
[he quotes from Institutes III. 24.4 which itself quotes the passage from Gaius
cited above and continues] ... Observe that for a contract to be a contract of
hire it is enough that I furnish the workman with the principal material which
is to be incorporated in the works.
Although the workman furnishes all the other materials the contract
remains a contract of hire. One can give
several examples of this principle. When
I send cloth to my tailor to make me a suit even if the tailor, in addition to
making up the suit provides the buttons, the thread, even the lining and the
braid, our bargain will be no less a contract of hire. Equally, the bargain which I have made with a
building contractor for him to build me a house is no less a contract of hire
because in terms of our contract he must supply the materials; because the land
which I provide for him to build a house on is the most important thing about a
house. "Cum aedificium solo cedat"
27.
28. If further support for the authority
of Pothier is needed it can be found in the case of McIntyre v Clow, 1874 2R 278, an Inner House case which dealt with
the question of when risk passed in the case of a partially completed contract
for the erection of a house when a gable wall was blown down in an exceptional
gale, there being no defects either in the bricks used or the workmanship. In
deciding that the wall was at risk of the landowner Lord Ardmillan referred (at
p.283) to "the apt and weighty authority of Pothier (Cont. de Louage No. 434)
an authority as I think not opposed to any Scottish decision or to any
principle recognised by the law of Scotland." The point at issue was the
passing of risk, not the nature of the contract, but the respect accorded to
Pothier is evident.
29. Interestingly however Lord Ardmillan
did deal with the age old problem of the
nature of the contract. At the same page he said:-
"There is a plain and important distinction between the case,
on the one hand, of work done by a contractor for an employer within the
contractors own premises, to be delivered when finished to the employer, and
the case, on the other hand of work of a permanent character done by the
contractor on the ground of the employer. The work of a sculptor...or a painter...
or constructing a cabinet, a piano,........
to be delivered when finished is within the first class of cases. The
work of building a mansion, or building a
conservatory (my emphasis) or building a wall on the property on the
property of the employer is within the second class of cases. The distinction
is obvious.
"The rearing a building on my ground is a work in progress
for me, - the work and the only work which for me the contractor has undertaken
to execute is the work of rearing that building, - and as it rises from the
ground it rises for me. It accresces to the soil and as it rises and accresces
in its rise it becomes gradually mine. ...........the law of the case may be stated
thus :- A building reared on my ground is mine by accession or accretion. In so
far as it is reared it is mine. Progress in building on my ground is
progressive accession or accretion..........Such accretion operates delivery , -delivery
pro parte till complete, total
delivery when complete.
30. Lord Ardmillan made these
observations in the context of dealing with the issue of risk, but his division of
contracts into two types clearly supports Pothier's distinction between sale
and location.
31. Following Pothier the principal
material referred to by
32. Counsel for the pursuers referred to
para. 1-01 of Keating on Building Contracts, being a quote from Lord Diplock in Modern Engineering v Gilbert Ash. What Lord Diplock says is "A building
contract is an entire contract for the sale of goods and work and labour for a
lump sum price payable by instalments as the goods are delivered and the work
is done".
33. Modern Engineering is a case which relates to the right of the contractor to deduct from
any payments certified as due to the sub-contractor the amounts of contra
accounts and other claims which the contractor has against the sub-contractor
arising out of the same contract, a question which Lord Diplock answered
unequivocally in the affirmative. In
saying what he did in the quoted passage it seems to me that what was most
important to Lord Diplock was the fact that the contract was "an entire
contract", and he was saying this in the context of the contract he was looking
at. The contract which he was looking at
was an RIBA standard form contract. Contracts of this kind are so common that
it is I think within judicial knowledge to say that both the RIBA standard form
contract and its successor, the JCT standard form of contract made and make provision
to the broad effect that when unfixed materials are delivered to the site,
valued in terms of the contract and an interim certificate for that value
issued, on payment being made by the employer under that certificate the
material became the property of the employer.
That would be sale. I do not,
however, understand that what Lord Diplock was saying was intended to have
universal application so that every building or construction contract involving
the introduction of materials to the site required to have a contract of sale
as one of its constituent parts. Nor do
I consider that in a case where there was no such contractual provision Lord
Diplock was asserting that the passing of ownership of goods required to be
determined in accordance with the rules appropriate to the Sale of Goods rather
than the common law rule that property in materials built into land normally
passes to the owner of the land whether paid for or not.
34. The question whether ownership of movables
in a construction contract is to be dealt with by reference to the principles
of sale of goods or of accession requires to be dealt with in accordance with
the circumstances of each individual case including the specific terms of the
contract, the nature of the works, and the overall circumstances in which they
are to be carried out.
35. In the case of the defenders, their
contracts with their customers consist of offers submitted by the defenders to
their customer, and a simple acceptance by the customer. The introductory words of the offer in each
of the contracts lodged are:- "We have pleasure in submitting our quotation for
the following works, subject to the terms and conditions enclosed".
36. Although the contracts do not contain
any formal words of acceptance in each of the specific cases (productions
6/1/2-7) the customer has signed the final page of the offer which can only be
to signify acceptance. Five of the six
contracts involved the defenders providing architectural and engineering
services at a separately stated price.
They all involve, to a greater or lesser extent, site clearance, excavation,
building of walls, joinery works in supplying and erecting a conservatory or
other form of extension, supplying and fitting window frames, doors and glass,
roofing materials, plaster boards, drains and down pipes, electrical fittings
and wiring. It is clearly anticipated that materials will start life under the
contract by being brought to the site as corporeal movable property owned by
the defenders (at least so far as their customers are concerned), will be
incorporated into the emerging conservatory or extension and will ultimately
become the property of the customers. The question is how is that brought
about?
37. Nothing is said in the written
contract as to when or how these various items of movable property will become
the property of the customer. There is
no suggestion of certification, or of the property passing to the customers
when the materials are delivered to the site or on payment. So far as payment is concerned, there is a
contractual provision for a single price for all of the works other than the
professional fees which are stated separately.
The final paragraph of the contract deals with price by stating a limit
on the excavation work that has been priced for, a statement that any additional
work will be charged on a time and material basis, and that full payment is due
prior to the issue of a completion certificate as the issue of such a
certificate may be outwith the control of the defenders. Neither the individual
contracts nor the style contract nor the terms and conditions referred to
contain any provision relating to the passing of property in materials or the
retention of title to materials.
38. The inescapable conclusion is that
this is a single contract for the construction of a finished piece of building
work for a single lump sum price to be paid on conclusion of the works.
39.
40. In his Principles,
"This
strictly is an engagement to do certain work or materials furnished to the
workman, the material being bailed or delivered to the temporary possession of
the workman, to have the labour bestowed on it.
Where the thing is to be prepared of materials to be furnished by the
workman (as in the general case of manufacturers) the contract partakes of
sale".
41. The underlying principle in the case
of moveables seems to be that in the case of a complex "piece of work" the sale
is not of the different pieces of material which go to make up the end product,
but rather is of the end product itself.
A good example is the case of the building of a ship. All of the constituent parts of the ship are
corporeal movable property but whilst the work is going on and the building is
proceeding, and they are incorporated into the emerging ship they are not the
subject of separate contracts of sale. .At the conclusion of the work when the
vessel is completed and handed over, all of these items become the property of
the purchaser by virtue of the single contract of the purchase of the ship -
itself, of course, a piece of corporeal movable property.
42. That was the decision of the House of
Lords in Reid v MacBeth & Gray
(1904) 6F (HL) 25. In that case the
contract contained the clause:-
"The
vessel as she is constructed and all her engines, boilers and machinery and all
materials from time to time intended for her or them, whether in the building
yard, workshop, river or elsewhere shall, immediately as the same proceeds,
become the property of the purchasers and shall not be within the ownership, control
or disposition of the builders; but the
builders shall at all times have a lien thereon for their unpaid purchase
money".
43. In the course of construction of the
vessel, the shipbuilders became bankrupt at a time when a quantity of steel
plates intended for use in the construction of the vessel were lying at a
railway station. They had been passed by
the Lloyds surveyor, and were marked by the makers with the number of the
vessel, with marks showing the position which each plate was to occupy in the
vessel.
44. The Lord Chancellor (Halsbury) said,
quoting Lord Watson in the case of Seith
& Co v Muir (13R (HL) 57) "There is another principle which appears to
me to deducible from these authorities and to be in itself sound, and that is
that the materials provided by the builder and portions of the fabric, whether
wholly or partially finished, although intended to be used in the execution of
the contract, cannot be regarded as appropriated to the contract or as "sold"
unless they have been affixed to or in a reasonable sense made part of the
corpus".
45. Lord Davie said at page 30 "The
learned counsel and also the learned judges in the court below seemed to me to
have proceeded on the supposition or hypothesis that this contract contained
not only a contract for the purchase of the ship, but a separate contract for
the purchase of the materials also; and that seems to me to be a complete
fallacy. There is only one contract - a
contract for the purchase of the ship.
There is no contract for the sale or purchase of these materials separatim; and unless you can find a contract for the
sale of these chattels within the meaning of the Sale of Goods Act, it appears
to me that the sections of that Act have
no application whatever to the case".
46. In my opinion in this case too there
is only one contract and it is a contract for the building of an extension. There
was no contract for the sale or purchase of the materials necessary for the
building separate from the contract for the building works themselves.
47. So far as these building works are
concerned, one of the characteristics of a contract locatio operis faciendi is
that the worker (conductor) is hired to do work on the property of the hirer
(locator). The examples commonly given
are, in Gaius's time, the conductor working on the locator's gold to turn it
into a ring (locatio operis faciendi)
compared with a workman working on his own gold to produce a ring for his
customer (sale) and, in more modern times, the tailor working on cloth supplied
by the customer (locatio) compared
with the tailor working on his own cloth to provide a suit for his customer
(sale). In this case, the true nature of
the contract is for the worker (the defenders) to carry out work on the
customer's property, namely the land or the buildings on the land, and the
contract is one of locatio. It is neither a contract of sale nor are
there contracts of sale imbedded in it.
48. It was suggested by counsel for the
pursuers that I should take a purposive approach to the nature of the contract to
produce the required result of the EU Directive. It seems to me that the
49. Counsel for the pursuer referred me
to the text of paragraph 6 of the Encyclopedia in support of his submission
that the materials were supplied by the defenders, and that the services were
exhausted in the production of the finished article, leaving the materials in
the shape of the finished article to be sold.
I think the proper view is that both the services and the material are
exhausted in the production of the finished article, which is heritable and not
movable. As Pothier says, the principle material in the contract is the land on
which the house, or in this case, the extension is built. The first question is not who provided the
materials but what are the materials being worked on. In the case of the suit, the material being
worked on is the cloth provided by the locator.
In the case of the house, or extension, the material being worked on is
the land or existing building.
50. The clear distinction which Bell
makes in paragraph 147 of the Principles between the workman who works on his
own property to produce an item which is then sold to the employer/purchaser
and the situation where the worker carries out work on the employers' property,
which is the same distinction made by Lord Ardmillan, highlights the
distinction between the fundamental nature of the two contracts. The fundamental nature of the first is that the
workman transfers to the employer for a price an item of corporeal moveable
property, which is a sale of goods, and that fundamental nature is not, in any
way, diminished by the fact that the price contains payment not only for the
materials but for the work, including if appropriate artistic endeavour, that
the workman has put into the creation of the new "thing". The fundamental nature of the second contract
is that the workman carries out work on property which the employer gives into
the workman's temporary possession (
51. In a building contract, the property
which is put into the temporary possession of the workman is the land on which
the building is to be erected. In such a
contract the landowner is under an obligation, implied in some cases, explicitly
set out in others such as the JCT and ICE contracts, to give the workman
possession of the site. The workman, having been given possession of the land,
is then obliged to carry out the works on it.
This will almost always, save in the case of the simplest excavation,
involve the incorporation into the site of movables belonging to, or at least introduced
thereto by, the workman. But, as in the
case of the ship referred to in Reid v
MacBeth & Gray, and in the closer example given by Lord Ardmillan in McIntyre v Clow the transfer of
ownership of those moveables arises not
by virtue of a contract of sale and purchase, but by virtue of accession or
accretion to the land as a natural consequence of the obligation of the workman
to carry out the task allocated to him - in this case to build a conservatory
or a sun lounge.
52. There is nothing in the joint minute
or in the individual contracts, Nos. 6/1/1 - 7 to indicate that a separate contract
of sale was envisaged by the parties, indeed the wording of the contract makes
it clear that what the parties envisaged was that work would be carried out on
the site with the workman, the defenders, supplying and incorporating into the
works such materials as were necessary to achieve the end product, the
construction of the building on the land, in other words an entire contract. That contract seems to me to be one of locatio operis faciendi and therefore not a contract to which the
Directive or the Regulations apply.
2 Were the Pursuers activities secondary?
56. My
decision on the applicability of the Regulations to agents engaged in
negotiating contracts for the erection of conservatories is sufficient to
dispose of the action but, lest I be wrong in that decision I will express my
views briefly on the second issue, namely whether the activities of the
pursuers as agents are to be considered secondary and therefore excluded by
virtue of regulations 2(3) and (4) of the Regulations. They are in the following terms:-
"2(3).
The provisions of the schedule to these regulations have effect for the purpose
of determining the persons whose activities as commercial agents are to be
considered secondary;
2(4).
These regulations shall not apply to the persons referred to in paragraph (3)
above."
57. The
terms of the Schedule are as follows:-
1. The activities of a person as a commercial
agent are to be considered secondary where it may reasonably be taken that the
primary purpose of the arrangement of this principal is other than as set out
in paragraph 2 below;
2. An arrangement falls within this paragraph if
(a) the business of the principal is the sale, or as the case may be purchase,
of goods of a particular kind; and (b)
the goods concerned are such that -
(i)
transactions are normally individually negotiated and concluded on a commercial
basis, and (ii) procuring a transaction on one occasion is likely to lead to
further transactions in those goods with that customer on future occasions, or
to transactions in those goods with other customers in the same geographical
area or among the same group of customers, and that accordingly it is in the
commercial interests of the principal in developing the market in those goods
to appoint a representative to such customers with a view to the representative
devoting effort, skill and expenditure from his own resources to that end;
3. The following are indications that an
arrangement falls within paragraph 2 above and the absence of any of them is an
indication to the contrary
(a)
the principal is the manufacturer, importer or distributor of the goods;
(b)
the goods are specifically identified with the principal in the market in
question rather than, or to a greater extent than, with any other person;
(c)
the agent devotes substantially the whole of his time to representative
activities (whether for one principal or for a number of principals whose
interests are not conflicting);
(d)
the goods are not normally available in the market in question other than by
means of the agent;
(e) the arrangement is described as one of
commercial agency.
4. The following are indications that an
arrangement does not fall within paragraph 2 above:-
(a)
promotional material is supplied direct to potential customers;
(b)
persons are granted agencies without reference to existing agents in a
particular area or in relation to a particular group; and
(c) customers normally select the goods for
themselves and merely place their orders through the agent."
59. The
provisions contained in the Schedule are the means by which the
60. I had
the benefit of interesting and helpful submissions from both parties on this
issue focussing on the principle behind the Regulations and the specific
question as to how the relationship between the parties fell to be interpreted
for the purposes of the Schedule. In the course of the hearing I was referred
to a number of authorities and in particular Commission of the European Communities -v- the Italian Republic ECJ
- 687; AMB Imballaggi Plastici -v- Pacflex Limited 1999 EWCA Civ1618, Tamarind
International Limited -v- Eastern Natural Gas (Retail) Limited 2000 EULR 708; King
-v- T Tunnock Limited 2000 SLT 744; Gailey -v- Environmental Waste Controls
Limited 2004 EU LR 423; and MacAdam
-v- Boxpack Limited 2006 SLT 217.
61. It is
clear from the legislative history of the Regulations, their terms, and the
authorities that the purpose of the Regulations is to provide a degree of
financial protection to agents who build up goodwill in a product, which
goodwill accrues to the principal, and in respect of which the agent has no
mechanism for obtaining a financial benefit.
The protection is not available to all commercial agents, only those
whose activities are not considered secondary.
They are considered secondary if it can be reasonably taken that the
primary purpose of the arrangement is other than as set out in paragraph 2,
applying the indications and counter-indications as set out respectively in
paragraphs 3 and 4 of the schedule.
62. The
factual background to the arrangement between the pursuers and the defenders
can be taken from the joint minute which is largely reflected in my
findings-in-fact
63 Applying
the tests of the Schedule to these facts, and the others which I have listed in
the findings-in-fact, and allowing for the purposes of argument that the
contracts relate to a sale of goods it seems to me that the following can be
said in respect of paragraph 2 of the Schedule:-, (a)that the business of the
defender is the sale of goods (b) that the goods are of a particular
kind, namely conservatories or extensions, (c) that each transaction was normally
individually negotiated and individually concluded on a commercial basis, and
(d) that procuring a transaction on one occasion is likely to lead to further
transactions in the future. I make this
last conclusion on the basis that the defenders did not build any
conservatories without the contracts being concluded, that all of their
contracts for conservatories were concluded through agents, that therefore
those who made enquiry because they had seen a Bon Accord conservatory or
extension saw something which had been brought about by virtue of contract
procured through an agent.. Similarly a personal recommendation about an agent
or about the defenders for their conservatories would come about because of the
involvement of the agent in the negotiating of the contract, that pre-existing
customers would have had dealings with the agents, leaving only the final
category of customers, namely ones who had no previous knowledge or dealings
with the defenders. It seems to me,
looking at the joint minute, that the contract is of crucial importance to the
work which the defenders did in the conservatory division. Every conservatory or extension was built in
implement of a contract which had been entered into by an agent. It can be seen from the description of the
work of the agent that the agent's task was to nurture the customer from the
status of a mere enquirer to the status of a contracted party, and that each
agent would do this by bringing his own particular skills in listening to the
requirements of the purchaser, obtaining drawings for the purchaser, obtaining
prices for the purchaser, and negotiating the deal to the purchaser's and
defenders' satisfaction. By doing all of
that, without looking to the indicators and contra-indicators in paragraphs 3
and 4, it could not be said that the primary purpose of the arrangement between
the pursuers and the defenders was other than as set out in paragraph 2. Looking to the agreed facts it seems to me
that the primary purpose of the arrangement between the parties was on the face
of it within paragraph 2 when looked at on its own.
64. So far as paragraphs 3 and 4 of the Schedule
are concerned, in the particular circumstances of this case it does not seem to
me to make any difference whether one applies the approach of the Sheriff and
the Sheriff Principal in MacAdam -v-
Boxpack Limited, which was accepted as the appropriate course by parties
when arguing the case in the Inner House, namely that a prima facie view is
first taken in terms of paragraph 2 of the schedule and then paragraphs 3 and 4
are applied to ascertain whether the application of the indicators and
contra-indicators affected the preliminary view, or whether the approach
adopted by the Court of Appeal in AMB
Imballaggi Plastici and by Morrison J in Tamorand International Limited, is followed namely that one goes
first of all to paragraphs 3 and 4 to determine whether the arrangement falls
within paragraph 2.
65 Looking
at paragraph 3 it seems to me that many of the positive indicators are present
in the circumstances surrounding the relationship between the pursuers and the
defenders. The defenders are the
manufacturer of the conservatories; the conservatories which are manufactured
are specifically identified with the defenders in the market for conservatories
in the North East of Scotland rather than with any other person. The agent, in
this case the pursuer devoted his whole time to representing the defenders and
the conservatories are not normally available in the market other than by means
of the work of the pursuer or his fellow agents. The arrangement between the
parties was defined as one of agency, though not one of a "commercial agency",
but given the statutory definition of a commercial agent contained in
regulation 2 it seems clear to me that the agreed description of the defenders'
agents as "sales agents", goes very close to an acceptance that, providing the
contract was one for the purchase or sale of goods, the pursuer was a
commercial agent.
66. Turning
to the contra-indications contained in paragraph 4 of the schedule, the parties
are agreed that brochures and other marketing and promotional materials bore
the name of the defenders, but that it was unusual for such material to be
supplied direct to customers. The
business was built up primarily through word of mouth, but when promotional
material was used it was usually distributed by the agents. The pursuers had on occasion had leaflets
delivered to customers and prospective customers. I could not say that paragraph 4(a) was in
any way established as a contra-indicator, if I had required to do so I would
have thought that the contrary was established as representing the general
scheme of things. Persons are granted
agencies by the defenders without reference to existing agents and accordingly
this contra-indicator is established. Customers normally selected the goods
only after discussion with the agent as to their specific requirements both in
respect of design and price, and accordingly the contra-indicator in paragraph
4(c) is not established.
67
Applying the indicators and contra-indicators of the Schedule serves to
confirm the initial view which I take of the arrangement as a whole looking at
it simply in terms of paragraph 2 of the Schedule.
68 In MacAdam -v- Boxpack the Inner House
approved the approach taken by the Sheriff Principal and by the Sheriff in
asking the question "Has the pursuer been engaged to develop goodwill in the
defenders' business?" In this case in my
opinion the answer clearly falls in the affirmative.
69 In all of the circumstances, having regard
to the fundamental nature of the defenders' success, I consider it appropriate not merely to make
certain findings in accordance with the rules for commercial actions, as I was
invited to do by counsel for the pursuers, but rather to dispose of the parties
relevant pleas-in-law and dismiss those of the pursuers' craves which are
founded upon rights contained in the Regulations.
70 I have put the case out for a hearing as to
future procedure in respect of crave 1 at which time it will be convenient to
deal with issues of expenses on which I was not addressed