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United Kingdom House of Lords Decisions
You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> Claddagh Steamship Co., Ltd v. Thomas C. Steven & Co. [1919] UKHL 619 (01 August 1919)
URL: http://www.bailii.org/uk/cases/UKHL/1919/56SLR0619.html
Cite as: 56 ScotLR 619, [1919] UKHL 619
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SCOTTISH_SLR_House_of_Lords
Page: 619↓
House of Lords.
(Before
v.
(In the Court of Session, December 19, 1918, 56 S.L.R. 195.)
Subject_Contract — Writ — Proof — Admission of Evidence to Show Apparent Final Written Contract not the Real Contract of Parties but merely Machinery for Carrying out Real Contract.
Contraet — Sale — Ship — Fulfilment of Contract — Intervention, through Requisition, by Government.
Facts:
A trading company were anxious to purchase a ship for their business, and got in touch with a ship company which owned two ships, one free, one under requisition, and was willing to sell. The ship company, however, refused to sell the free ship alone, and after negotiations the trading company agreed to purchase both ships at £100,000. The brokers made out a separate written contract for each ship, dividing the £100,000 without consulting the sellers, which contracts were duly executed. Before the ships were delivered the Government put the free ship under requisition. The trading company refused to go further, and the ship company took action against them. Held (1) that it was competent for the trading company to prove by extrinsic evidence that the written contracts were not the real contracts of parties, but were merely the machinery for carrying out the real contract, which was for the sale of both the ships together; (2) that the purchase by the trading company of the one ship was of a free ship for their own trade, and the ship company could not insist on the purchase when the ship was no longer free; and (3) that the ship company
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being thus unable to fulfil the contract so far as the one ship was concerned could not insist on fulfilment in the case of the other.
This case is reported ante ut supra.
The defenders, Messrs Thomas C. Steven & Company, appealed to the House of Lords against the judgment of the Court of Session in respect to the “Factor.” The pursuers, the Claddagh Steamship Company, Limited, took a cross appeal in respect to the “Claddagh.”
At delivering judgment—
The Claddagh Steamship Company had two ships, the “Claddagh” and the “Factor.” Messrs Steven were desirous of buying the “Claddagh” for use in their trade. The Claddagh Steamship Company refused to sell the “Claddagh” unless the “Factor” were also bought. After some negotiations the parties met on the 1st November 1917, and an arrangement was made as stated in a letter of that date from Messrs Steven to Messrs Little & Company, the firm of brokers acting for both parties, for the sale of the two steamers “Claddagh” and “Factor” for £110,000.
On the 6th November the price for the two boats was altered to £100,000. Mr Davis, a member of the brokers' firm, who had made this new arrangement with the representatives of the Claddagh Company, Mr Robertson and Mr Lauder, found a difficulty in putting the agreement for the two vessels into one contract. On the 6th he mentioned to Mr Robertson that it was “rather necessary” to have the documents in two forms, but no arrangement was made with him as to how the price was to be divided. Mr Steven suggested that £60,000 should be put in for the “Factor” and £40,000 for the “Claddagh,” and this was done without any communication with the sellers. Two forms of contract were accordingly drawn up, and the letter of 6th November 1917 was sent by Little & Company to the Claddagh Steamship Company. This letter is of some importance, and it is as follows:—“ ‘Factor’ and ‘Claddagh’—Referring to our interview of date and the telephonic conversation with Messrs Steven, when it was agreed between you that this sale was in order at £100,000 for the two steamers, less 2 per cent. commission to us, subject to details of contract, we have now drawn up the enclosed contracts, details of which we trust you will find in order. We are sending duplicates to Messrs Steven tonight for their approval, as they wish to promptly submit them, with the forms of application they have to fill in, to the Shipping Controller. Irrespective of the conditions in the contract, it is understood, as already agreed, that the sellers undertake to release the s.s. ‘Claddagh’ from the present coal contract, and in this respect we understand from Messrs Steven that the Ministry of Shipping are agreeable. It is further understood that the existing marine policies of insurance for the steamers shall be cancelled by the sellers, and that the return premiums granted under same are for purchasers' account.”
The two contracts were signed by both parties, and are the documents on which these actions are brought. They are both dated 6th November 1917, and with the differences of name and price are very nearly in the same terms.
The contract with regard to the “Claddagh” gives the price as £40,000, and provides that on payment of purchase money a legal bill of sale should be executed and the ship delivered to the purchasers. There was a deposit of 10 per cent. of the purchase money, and provision was made for forfeiture of the deposit on default of payment by the purchasers and for its return in default by the sellers or loss of the vessel before the time of transfer. A marginal addition expressed that the vessel was sold subject to the sanction of the British Government. The agreement for the “Factor” was in the same terms mutatis mutandis. The price was £60,000, and there was a note that the purchasers took over the vessel with her Government requisition.
On the 9th of November the “Claddagh” was requisitioned by the Admiralty, and it became impossible for the vendors to put the vessel at the disposal of Messrs Steven for use in their trade. Messrs Steven refused to take delivery of the vessel subject to the Admiralty requisition, and also refused to take delivery of the “Factor” on the ground that they had bought the two vessels together, and that the “Factor” without the “Claddagh” was of no use to them.
Lord Hunter in the action for non-acceptance of the “Claddagh” held that the requisition by the Admiralty prevented the vessel from being deliverable within the meaning of the contract. “The vessel,” he says, “was no longer a subject that at the date of the delivery could be employed in the defenders' trade, and the defenders were entitled, in my opinion, to maintain that the agreement was not binding upon them.” For this reason he decided as regards the “Claddagh” in favour of Messrs Steven, and his decision was affirmed in the Court on appeal. In my opinion the Lord Ordinary and the Inner House were right on this point, and the cross appeal as regards the “Claddagh” should be dismissed.
It was urged for the Claddagh Company
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The question remains whether the fact that delivery could not be made of the “Claddagh” entitled Messrs Steven to refuse to take the “Factor.” Lord Hunter, the Lord Ordinary, decided on this point in favour of Messrs Steven. The Claddagh Company contended that the two contracts were separate and distinct and not in any way depending upon one another, and that Messrs Steven were bound to take the “Factor” at the price of £60,000 by itself. The Claddagh Company contended that as there was nothing in the written agreements themselves to make them interdependent, the surrounding circumstances could not be looked at for this purpose. Lord Hunter, however, said—“I do not think that the rule of law which excludes parole evidence to qualify a written contract precludes a party from showing that two separate contracts, drawn up and signed at the same time, are in effect two parts of the same contract, or, to put this in a different way, that there is such an interdependence of the two contracts that fulfilment of the one cannot be insisted on where the party seeking to enforce the one contract is, it may be by no fault of his own, unable to make implement of the other. … In the present case the defenders only made an offer to purchase the ‘Factor’ because they were unable otherwise to purchase the ‘Claddagh.’ This was known to the pursuers, and it appears to me in the circumstances as disclosed in the evidence that it is impossible for them now to claim damages against the defenders because the latter failed to take delivery of the ‘Factor,’ if they themselves are unable to implement the contract so far as the ‘Claddagh’ is concerned.”
Lord Hunter was reversed as regards the “Factor” by the First Division. The reasons given in the First Division varied. The Lord President was of opinion that the absence of any such provision in the written contract was fatal to Messrs Steven's contention upon this point. Lord Mackenzie said—“There is not enough in the circumstances known to both parties to make the two transactions interdependent.” Lord Skerrington said—“It is, however, sufficient for the decision of this case that both parties accepted the brokers' suggestion, and that they signed a separate contract for each ship, each contract containing terms and conditions inconsistent with the notion that each of the contracts was conditional upon the due performance of the other.” Lord Cullen said—“These contracts, had the parties so intended, might have been so conditioned as to create the species of interdependence between them, which the buyers now seek to maintain. But they are void of any such condition, and I am unable to see any ground on which it can be read into them.”
These judgments can be supported only if the parties have substituted two separate contracts, each for one ship only, for the one contract for the two ships. It is obvious upon the evidence that Mr Steven never had any such intention, and Mr Davis, who as broker acted for both parties, entirely corroborates him. The Claddagh Steamship Company abstained from calling either Mr Robertson or Mr Lauder, who had represented them in the transaction, so that the evidence for Messrs Steven is not contradicted. The Claddagh Company are indeed entitled to say that effect must be given to the rules of law with regard to written documents, and to contend that the evidence does not establish that these documents were interdependent. But the mere existence of two documents for the sale each of one ship is not sufficient to establish the contention of the Claddagh Company. It is always open to inquiry whether such documents were executed and delivered by the parties as containing the real bargain between them. If the result of the evidence is that the two ships were to be sold together for £100,000, and that the two documents were executed merely as pieces of machinery for carrying out such a sale, and not to replace it by a new arrangement which would vitally alter the rights of the two parties, the contention of the Claddagh Steamship Company must fail. It is a very remarkable circumstance proved by the broker Mr Davis, that the prices of £60,000 and £40,000, together making up £100,000, were attributed to the “Factor” and the “Claddagh” respectively without communication with the sellers. They were suggested by Mr Steven in answer to Mr Davis's question—“What separate prices might be put in so as to bring them together?” It is impossible to suppose that either party when signing these documents regarded them as new contracts for sales of separate ships at separate prices, and not depending upon one another. The letter of the 6th November 1917, which I have above set out, was written at the time by the broker to Messrs Robertson & Company for the Claddagh Company, and it seems almost conclusive that these instruments were drawn up and signed by the parties not to supersede but to carry out the agreement
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The question is really a question of fact. The evidence on behalf of Messrs Steven, and the absence of any contradiction on the part of the Claddagh Company, are in my opinion decisive to show that the two “contracts” were executed and delivered only for the purpose of carrying out the arrangement for the sale of the two ships together, and that they are therefore interdependent.
I think that the decision of the First Division on this point should be set aside, and the interlocutor of the Lord Ordinary restored.
I am therefore of opinion that the appeal of Messrs Steven should be allowed, with costs here and below, and that the cross appeal should be dismissed, with costs.
The general rule is clear that where the terms of a contract have been embodied in a formal document then in determining what the contract is a court must look to the formal document and to that alone. This is the “wholesome salutary rule” which was enforced in Inglis v. Buttery, L.R., 3 A.C. 552, 5 R. (H.L.) 87, 15 S.L.R. 462. But nevertheless it is open to a party to prove, if it be the fact, that the actual contract between the parties was not embodied or intended to be embodied in the formal document, but that the latter was (to use the words of Lord Selborne in Jarvis v. Berridge, L.R., 8 Ch. 351, at p. 359) a “mere piece of machinery obtained … as subsidiary to and for the purposes of the verbal and only real agreement.” I have no doubt that the burden of proof lies heavily upon a litigant who seeks to establish such a case, but if it is established effect is given to it in the courts.
In the present case the evidence is all one way. The evidence of Mr Steven and Mr Davis, which was supported by the correspondence and was not contradicted by the respondents in any way, appears to me to prove that there was throughout one contract for the sale of the two vessels at one price of £100,000; and that the formal contracts for the sale of one vessel for £40,000 and of the other for £60,000 were not intended to supersede the main agreement, but were only machinery adopted for the sake of convenience in carrying the agreement into effect. Indeed so little did this separation of the two vessels represent the real agreement of the parties that the sellers were not even consulted before the apportioned prices were fixed and inserted in the contracts. It is noticeable also that according to the admission of both parties there were other terms which formed part of the agreement between them but were not embodied in the formal contracts, and it cannot therefore be said that the formal contracts contain the whole agreement. In these circumstances it appears to me that the case falls exactly within the words used by Lord Selborne in Jarvis v. Berridge, and that it would be wrong to compel the appellants to perform a part only of their agreement and to purchase a ship which they never wanted when through no fault of their own they cannot obtain the ship which they have always desired to have, and the purchase of which was the real basis of the whole transaction.
I think that the principal appeal should succeed and the cross appeal should be dismissed, and I agree with the order proposed.
It being then fixed that the appellants were not bound to pay for the “Claddagh,” can they be forced to pay for the “Factor”?
It is in my view of prime importance to come to a determination as to whether there was a concluded parole agreement on 6th November 1917 for the sale of both vessels at a slump price of £100,000. I think that parole agreement is proved. It was sworn to distinctly by Davis, the broker through whose mediation the bargain was made. His view is confirmed by the terms of his letter written on the same date to Messrs Robertson, who were representing the respondents, which says under the heading of “Factor” and “Claddagh”—“Referring to our interview of date and the telephonic conversation with Messrs Steven, when it was agreed between you that the sale was in order at £100,000 for both steamers, subject to details of contract, we herewith enclose contracts.…”
This letter was in no way repudiated as to its statement of there having been a concluded bargain. On the contrary, on the very next day a letter was sent by Messrs
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Now that being the contract, i.e., for two vessels, I cannot assent to the view that that contract was superseded by the two signed forms of contract which dealt separately with each vessel. These signed contracts were merely the machinery to carry out the bargain already concluded. In my opinion, therefore, we are not here within the range of the law dealt with in Inglis v. Buttery (L, R., 3 A.C. 552, 5 R. (H.L.) 87, 15 S.L.R. 462), which decides that negotiations preceding a contract cannot be allowed to control the true construction of a formal contract concluded. The contract here was the verbal bargain—there was nothing left to settle but the ordinary details of how that contract was to be carried into effect by means of an instrument of transfer.
Accordingly I think that when it became impossible to deliver the “Claddagh,” the appellants were not bound to accept the “Factor.”
That this is in accordance with the good faith of the situation there can be little doubt, for it was only the “Claddagh” that the appellants wanted, and the purchase of the “Factor” was really forced upon them by the respondents.
This view precludes the necessity of considering the doctrine of what is termed “interdependency” of separate contracts. I wish to reserve my opinion on such a case till it arises. I feel it necessary to say this because I think that the Lord Ordinary in citing the case of Holliday v. Lockwood ([1917] 2 Ch. 47) has scarcely adverted to the fact that the decision in that case would not fit in with the doctrines of Scottish law, depending as it does on the denial of recission at law, and the refusal in equity to give specific performance.
I think the appeal should be allowed, and the judgment of the Lord Ordinary restored—the cross appeal dismissed.
When there is such a slump contract it is, of course, always a question of circumstances whether individual contracts when entered into in writing are meant to be executry of the overhead contract or to be in substitution therefor. The same principle is applicable to this class of case as to the ordinary case in which contracts for separate articles may be held to be so inter-linked as to enable a repudiation of one contract to operate as a release from the whole bargain. On this subject I think it right to quote the judgment of Mr Justice Astbury in the recent case of Holliday v. Lockwood ( [1917] 2 Ch, 47). The learned Judge quotes at some length, and follows, the decision of Lord Brougham in Casamajor v. Strode ( 1833, 2 My. & K. 706), and he deals with what case law there is upon the point. I venture repectfully to agree with the learned Judge's views, which are thus expressed (p. 52)—“It may therefore be concluded that in determining whether a purchaser who fails to obtain a good title to one lot shall be let off from his contract for another, the whole circumstances may be examined in order to prove that the two contracts are one, by showing that the two parcels are complicated together, and that upon the whole transaction the Court will determine as a jury would the question, did or did not the party purchase the one with reference to the other; would he or would he not have taken the one had he not reckoned upon also having the other?”
This being the principle to be applied, and it being essentially sound, I do not doubt that under proper Scotch procedure effect would be given to it. But it is not necessary to deal with that. In the present case there are no procedure obstacles. And I entertain no doubt, after a careful perusal of the evidence and correspondence that the Lord Ordinary has rightly interpreted the situation to be that the overhead contract for £100,000 for the two steamers was never abandoned, but that upon the contrary the contracts for each of the two steamers respectively were entered into not for the purpose of supplanting but for the purpose of giving effect to the overhead contract referred to.
Three facts appear to me clear—1. That the appellants, who are shipowners and had contracted
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It is agreed upon all hands that if either the one party or the other had been confronted with the possibility that the one vessel was to be sold separately and apart from the other, both parties would have surmounted all obstacles and any inconvenience so as to prevent a result which was contrary to the will both of the buyers and the sellers. In short, the sellers said—“Take both vessels or neither, for you cannot get one alone.” Whereas the buyers said—“Then be it so; we will take both since we are not allowed to take the one without the other.” I cannot see any ground for the suggestion in fact that the written contracts either were meant to or did annul or vary this bargain.
I am aware of the principle to which effect has been given by their Lordships in the Second Division (for a reason which I entirely respect), i.e., that when a written contract or contracts have passed between parties it is incompetent to refer to anterior conversations or correspondence for the purpose of qualifying or altering that written contract. I am aware also of the grave misuse that is so frequently made of the observation of Lord Blackburn in Inglis v. Buttery (L.R., 3 A.C. 552, 5 R. (H.L.) 87, 15 S.L.R. 462), that contracts are to be read in the light of surrounding circumstances. But there is no qualification to be admitted here. The whole three contracts, the one for each ship and the overhead contract, are not inconsistent, they stand together. It is no part of the contract for a single ship to have, as Lord Mackenzie appears to require, a stipulation that it was nullified unless there was the fulfilment of a contract with regard to the other ship. Once the overhead contract is established and not abandoned, each contract separately stated deals with the item with which it is alone concerned and forms a part of that general bargain which in my humble judgment must here be affirmed as having been unquestionably made and never abandoned.
I respectfully agree.
The appeal has to do with the other vessel the “Factor.” Here the pursuers seek to enforce the written obligation of the 6th November relating to this ship upon the footing that that contract stands alone.
I am not of that opinion. I find no difficulty arising from Inglis v. Buttery ( 1878. L.R., 3 A.C. 552, 5 R. (H.L.) 87, 15 S.L.R. 462) and other well-known authorities, which support the proposition that where the parties have expressed their contract in a formal written instrument the Court in determining what the contract is must look to the written document and to that alone. The defenders here have no occasion to control, modify, or vary the two written contracts of the 6th November in any particular. Their case is that those two contracts are but part of a larger contract—an overhead contract—of which those two contracts unmodified and unaltered form part. That contract was a contract for the sale of two ships for £100,000 upon the terms of the two written contracts of the 6th November as regarded the ships respectively, and further upon the terms ( a) “that the sellers undertake to release the s.s. ‘Claddagh’ from the present coal contract,” and ( b) “that the existing marine policies of insurance
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Their Lordships, with expenses, sustained the appeal, restoring the judgment of the Lord Ordinary, and dismissed the cross appeal.
Counsel for the Appellants— Hon. Wm. Watson, K.C.— Wright, K.C.— Carmont— Wylie (in Cross Appeal). Agents— Beveridge, Sutherland, & Smith, W. S., Leith— Thomas Cooper & Company, London.
Counsel for the Respondents— Sir John Simon, K.C.— Condie Sandeman, K.C. Agents— Maclay, Murray, & Spens, Glasgow— J. & J. Ross, W.S., Edinburgh— B. A. Woolf & Company, London.