Dunlop Pneumatic Tyres Co Ltd v Selfridge & Co Ltd [1915]

English Contract Law

Dunlop Pneumatic Tyres Co Ltd v Selfridge & Co Ltd [1915]
‘Tyre’ by Kiku Poch

After litigation is bought against a third party the enforcement of a contract extending beyond reasonable bounds proves the undoing of a commercial tyre distributor when the rules of English contract law move to narrow the scope of claim and protect those party to sub-contracts.

In 1911 the appellant tyre manufacturer set about establishing written agency distributorship agreements with a number of commercial outlets in order to retain control over the sale value of its key products, wherein sch.2 and sch.5 of those contracts required all participating agencies to agree that:

“(2) We will not sell or offer any Dunlop motor tyres, covers or tubes to any private customers or to any co-operative society at prices below those mentioned in the said price list…nor give to any such customer or society any…discounts or advantages reducing the same.

(5) We agree to pay to the Dunlop Pneumatic Tyre Co Ltd, the sum of 5l for each and any tyre, cover or tube sold or offered in breach of this agreement, as and by way of liquidated images and not as penalty, but without prejudice to any other rights or remedies you or the Dunlop Pneumatic Tyre Co Ltd may have hereunder.”

In exchange the agencies were granted a 10% discount and some instances annual rebates for high value orders, and so on this occasion the respondents had purchased a Dunlop tyre from an agency, who as consideration were prevented from selling Dunlop products to any other firms or individuals for less than the standard list price, while afforded a discretionary right to sell Dunlop products to other trade outlets at a maximum of 10% discount on the proviso that those purchasing had pre-signed a prohibitive contract similar to the one held by the agencies.

With this in mind the respondents later sold a particular Dunlop tyre to a private customer at a seven and a half percent discount, and yet when ordering the tyre from the agency they were informed that no discount could be offered to the buyer without the completion of a signed price maintenance agreement (an act later executed by the respondents). 

Having learned of this the appellants sought an injunction and sued the respondents for breach of contract on grounds that the agency were acting under their principle control, therefore by selling the tyre to a prohibited party they were liable for damages as expressed in sch. 5 above. 

In the first instance the judge awarded in favour of the appellants before granting the injunction as requested, while challenged in the Court of Appeal the respondents argued that the contract between the agency and the appellants excluded the right to enforce it upon a third party on grounds that no consideration had been given by the appellants when the price maintenance agreement was drafted between the respondents and the agency. 

Having lost the appeal the appellants pressed the issue before the House of Lords, who unanimously upheld the previous judgment on grounds that lack of consideration at the point the agreement was made precluded the appellants any claim of right under English common law, while reminding the parties that:

“[O]nly a person who is a party to a contract can sue on it.

Carlill v Carbolic Smoke Ball Co. (1893)

English Contract Law

Carlill

The primary ingredients to a valid and enforceable contract are (i) offer (ii) acceptance (iii) consideration and (iv) performance; and so on this occasion, the sale of medicinal apparatus proved the undoing of what may have at first blush appeared to be a lucrative use of marketing and false pretence.

In 1891 an advertisement was placed in the Pall Mall Gazette boasting the remedial powers of carbolic smoke balls, that when used in accordance with the manufacturers instructions could prevent users from the effects of influenza, while the exact words used stated that:

“100l reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the increasing epidemic influenza, colds, or any disease caused by taking cold, after having used the ball three times daily for two weeks according to the printed directions supplied with each ball. 1000l is deposited with the Alliance Bank, Regent Street shewing our sincerity in the matter.”

Having decided to take the challenge, the respondent in this appeal purchased and used the product in full observation of the terms of the advert and yet still caught the virus, whereupon she sued for breach of contract.

Following a general examination of  the nature of her claim, the court awarded in favour of the respondent, before the appellants sought to challenge the existence of a contract on grounds that (i) the advert did not constitute a contract, (ii) that non-specificity of persons prevented any binding effect on consumers, (iii) that no acceptance had been notified so as to bind them, and (iv) that no consideration had been made by the respondent so as to warrant a claim of right.

After addressing each point sequentially the Court of Appeal unanimously held that while the advert did not amount to a contract, it did represent an offer to the world entire, therefore those who chose to purchase and use the product as prescribed within the published text were through their participation, demonstrating full and unconditional acceptance of the offer.

Similarly the money spent and time invested when using the smoke balls (an unpleasant experience in itself) further indicated that consideration had been sufficient enough to allow a claim.

In addition the Court upheld the appeal on grounds while noting how unlike arms-length contracts, the all-encompassing design of advertisements were not such that required acceptance for reasons of practicality and that reasonable application of the promises made prevented revocation by the advertisers on grounds that when drafting the advert, they did so upon the risk that profit may, or may not, have become certain, while reminding the parties that:

“Inconvenience sustained by one party at the request of the other is enough to create a consideration.”

Notes on the 2018 Carillion collapse

Insight | August 2019

Carillion
‘Le Chantier’ by Maximilien Luce

This is a twenty page report detailing the financial collapse of Carillion plc in 2018, and while this independent research explains much of the background leading up to their downfall, it also includes judicial insight into the rights of those left out of pocket when the hammer finally fell (click here to read it).

Carlton Communications plc v The Football League (2002)

English Contract Law

Carlton Communications plc v The Football League
‘Football’ by Anthony Barrow

The phrase ‘subject to contract’ is pivotal to the preservation of legal rights, particularly when negotiating for multi-million pound contracts. On this occasion, the eagerness of a national sports fraternity overtook the urgency for a logical and constructive approach to long-term franchise agreements, resulting in an outcome none would have wished for.

In June 2000, the Football League entered into a contract for licensing rights with ITV Digital (or ONDigital as they were then known), who themselves were subsidiaries to both Carlton Communications Plc and Granda Media Plc. Having begun negotiations in April 2000, ONDigital were extended permissions to tender for contracts not exceeding £10m, whereupon this particular bid was now worth in excess of £240m, which therefore required the oversight of Granda and Carlton, but nothing more.

In a document titled ‘Initial Bid for Audio-Visual Rights Football League 2001/2 – 2003/4 ONDigital’ Executive Director Graeme Stanley expressed within the Financial Arrangements section, that:

“ONdigital and its shareholders will guarantee all funding to the FL outlined in this document.”

While noting that as with the remainder of the document, all statements therein were ‘subject to contract’ and therefore not binding upon any parties.

During the negotiation period, the value of the contracts increased to £315m, and at the point of their contracting, express notice was given in clause 18, which read:

“18. ONdigital and FL shall use their best endeavours to execute a long form agreement within 60 days which will be negotiated with reference to the Football League Pre-Tender Document of 27th March 2000…and will include clauses such as standard legal boilerplate, confidentiality, compensation for ONdigital if there are significant changes in competition structure which adversely affect the value of the rights granted to ONdigital, minimum broadcast commitments, quality guarantees for programmes and competitions and the like.”

In December 2001, talks began which centred around the alleged winding down of ONDigital, and so the claimants proposed that the defendants Carlton and Granda were now liable as guarantors for any sums due, which at the point of litigation, was little under £134m. As was expected, the defendants noted that while assisting as a parent company, at no point did they enter into a contract with the claimants, and as such, were not responsible for any ONDigital debts outstanding.

Relying upon the comments made in the pre-contract documentation, as well as a vague mention of guarantees in Clause 18, the court examined how corporate contracting and personal liability are distinctly different animals. With reference to principles espoused in Salomon v Salomon, Kerr LJ had himself expressed in JH Rayner (Mincing Lane) Ltd v Department of Trade and Industry how:

“The crucial point on which the House of Lords overruled the Court of Appeal in that landmark case was precisely the rejection of the doctrine that agency between a corporation and its members in relation to the corporation‟s contracts can be inferred from the control exercisable by the members over the corporation or from the fact that the sole objective of the corporation’s contracts was to benefit the members.”

While due reference was given to the Statute of Frauds 1677, in which s.4 clearly explains how:

“No action shall be brought whereby to charge the defendant upon any special promise to answer for the debt default or miscarriage of another person unless the agreement upon which such action shall be brought or some memorandum or note thereof shall be in writing and signed by the party to be charged therewith or some other person thereunto by him lawfully authorised.”

While it was further noted that in ‘Chitty on Contracts’, paragraph 4-022 stressed how:

“Apart from the exceptional case of a written offer signed by one party and accepted orally by the other, the writing must acknowledge the existence of a contract. It is now settled, after some hesitation, that a letter expressed to be ‘subject to contract’ is not in itself a sufficient memorandum to satisfy the statute.”

This rendered any argument for financial guarantee fatal to the claim, and left the court no choice but to exempt the defendants from all liability relating to damages for breach of contract, while holding that:

“[A] subject to contract proposal is the antithesis of or at the least incompatible with a unilateral offer. The former is not open to acceptance; it is the essence of the latter that it is.”

Specific Performance

Insight | May 2017

Specific Performance
Image: ‘The Contract’ by Fritz Wagner

Under the law of contract there are times when two parties can no longer honour their agreement and at which point one of them is left wanting. In some instances the award of monetary damages is enough to provide remedy, however there are also those where the loss is irreplaceable. On those occasions the court can legally impose a duty on those no longer willing (or seemingly able) to perform the task they originally contracted to undertake. While in certain cases the source of non-performance can also stem from frustration the criteria here is one of general breakdown of communication or even unresolvable conflict that while perhaps entirely warranted on the part of the negator, leaves the claimant with no other option than to sue.

Once agreed upon, an order for specific performance will comprise two elements (i) declaration of the order and (ii) provision of consequential detections to that effect. It is also important to note that where a contractual breach is only anticipated the court can still require specific performance or provide injunctive measures, as was outlined by Lord Tucker in Hasham v Zenab:

“In equity all that is required is to show circumstances which will justify the intervention by a court of equity. The purchaser has an equitable interest in the land and could get an injunction to prevent the vendor disposing of the property.”

On this occasion the potential vendor immediately tore up a signed contract for sale of land after learning that the acreage was greater in the conveyance than as she had orally agreed. The language barrier between the two parties thus prevented clear understanding of what was at stake; and so left with a collapsed purchase the buyer sought specific performance prior to the completion date, upon which the court pondered its feasibility before dismissing the claim upon grounds of falsified evidence on both sides.

A positive example of specific performance can however be found in Rosesilver v Paton where a purchaser entered into a contract to acquire residential property, after which the vendor argued that the terms of the agreement relied on reimbursement of the part-purchase payments upon winning their two pending litigation cases, therefore the intention to sell was implied at the outset. Having examined the inconsistency of the vendor’s argument the judge dismissed additional claims of fiduciary breach and undue influence on a lack of cohesive evidence before ruling that the sale must now be completed. When reaching summary judgement Mann J concluded:

“I do not consider that Mr Paton has advanced a sufficiently clear and plausible case for saying that there was any form of binding (in any sense) arrangement, contemporaneously with the contract and its variation, which would restrict or restrain the enforcement of the contract.”

There are of course a number of factors that can hinder the ability to undertake a contract of engagement and these can range from disability and illness, personal conflict, mistrust based upon recent behaviour and costly supervision to enforce the performance. Likewise a failure to seek remedy for a protracted period can also work against a claimant as the negator could claim estoppel under the doctrine of laches. Ultimately though the choice to pursue specific performance will always run with an attached risk of further complications, as the inherent trust between contracting parties will have been irreversibly eroded once litigation commences; therefore financial damages should never be ruled out unless all other options have been exhausted.

Destiny 1 Ltd v Lloyds TSB Bank plc (2011)

English Contract Law

Destiny 1 v Lloyd's Bank plc
‘Flower Shop Doorway’ by Tom Nachreiner

As discussed in Crest Nicholson, it is imperative for disputing parties to recognise that the wording of documents, and the terms implied behind them, are not to be misconstrued to the detriment of those seeking justice (as is demonstrated in this brief matter).

When a small business owner found himself in a position to expand upon his success as a retail outlet, he began negotiations with a new bank that had shown an interest in helping him secure an additional property with a view to opening a second store. As there were complex requirements within the proposed arrangement, there needed to be a number of component contracts that would collectively form a single binding contract.

These came in a number of different forms, including several small charges against the properties held under title by the appellant, a guarantee of indemnity for a supplier the appellant had chosen for his new store, and  a re-financing of an existing loan with his current bank, which due to its significant size formed the footing of the agreement, because without it the bank had no means by which to achieve a workable profit.

As part of the pre-contract process, the bank sent a letter that conveyed its agreement to proceed with the package contract, on the proviso that the appellant also agreed to submit to the terms contained within the letter and the actions he was required to undertake prior to their commencement.

The appellant duly signed and returned the letter to display his compliance with those terms, but unfortunately for reasons not outlined within the appeal hearing, the bank was unable to proceed with the loan refinancing, and therefore the proposed arrangement could not be realised.

It was this unexpected withdrawal that promoted the appellant to cite that his business had subsequently suffered pecuniary losses through the inability to expand, and that the banks unwillingness to endorse his guarantee to the potential supplier constituted a clear breach of contract.

When given broad and considered thought in the Court of Appeal, it was reiterated that while the bank and the appellant had drawn up a multi-layered agreement to contract, no breach could be found without the complete participation of all the arrangements, for without them functioning as a whole, no such contract could be seen to exist; while the bank’s letter merely outlined that they needed the appellant’s agreement to the terms contained within, and that his acceptance did not by extension, form a binding arrangement.

Furthermore, while the bank’s cessation to undertake business with the appellant had left him dissatisfied, there could be no causal link between a failure of the contract to become manifest, and any obstruction of commercial expansion under his own efforts, thus the court dismissed the appeal, while holding that:

“[T]he law decides whether a contract has come into existence by looking objectively at what each party said to the other, not at their subjective intentions or understandings.”