This is a twenty page report detailing the financial collapse of Carillion plc in 2018, and while this independent report 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 (simply click here to read it).
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.”
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.
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, anda 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.”