Supreme Court

Embourg Ltd and McLoughlin v Tyler Group Limited 

223/95 

5 March 1996 

BLAYNEY J: [Nem. Diss.] 

This is an appeal by the plaintiffs/appellants (to whom I shall refer as the plaintiffs) against the decision of the President of the High Court dismissing the plaintiffs' claim for specific performance of a contract alleged to have been entered into by the plaintiffs for the purchase of No 55 Mary Street in the city of Dublin, which is the property of the defendant. 

The facts are not in dispute and are as follows. Carmel McLoughlin is a property developer and in September 1994 she was interested in purchasing No 55 Mary Street. On the 20 September 1994 agreement on price was reached between Hugh Markey of Lisney and Son, acting on behalf of the defendant, and Brendan Herlihy, an accountant acting on behalf of Mrs McLoughlin. Mr Markey sent the following letter to Mr Herlihy referring to the agreement:- 

"20 September 1994 

SUBJECT TO CONTRACT 

Re: 55 Mary Street, Dublin 1. 

Dear Mr Herlihy 

I refer to our discussions and confirm that I understand that our clients are prepared, subject to contract, to proceed with the sale of the above property on the basis briefly outlined below. 

Property 

The entire property, No 55 Mary Street, Dublin 1 with full vacant possession. 

Proposed purchase price 

£170,000 payable by a deposit of £5,000 with the balance to be paid on completion of the sale. 

Closing date 

Six months from exchange of contracts. 

Proposed purchaser: 

Mrs Carmel McLoughlin c/o Kevans, solicitors, 34 Fitzwilliam Place, Dublin 2. 

Solicitors: 

For the vendor -- Hooper and Company, 97 Upper George's Street, Dun Laoghaire, Co Dublin. 

For the proposed purchaser: 

Kevans, 24 Fitzwilliam Place, Dublin 2 (Mrs Jim Heaney) 

I trust that matters will proceed satisfactorily from this stage, but in the interim you will appreciate that neither our negotiations to date, nor this letter, can form part of nor create, any binding contract between the parties, which must await the formal execution of the appropriate legal documentation by both sides. 

Yours sincerely 

Hugh Markey" 

On the following day Mrs McLoughlin sent a cheque for the deposit of £5,000 to the defendant's solicitors and this was acknowledged by them in a letter sent to Mrs McLoughlin c/o her solicitors. The letter from the defendant's solicitors stated: 

"Please note that no binding contract is to be deemed to exist until such time as a contract herein has been executed by all parties. We do not have authority to bind our client. 

To confirm the booking deposit is accepted subject to contract. 

On the 28 September 1994 Mrs McLoughlin's solicitors sent the following letter to the defendant's solicitors: 

"Subject to contract/contract denied 

Re: Our client: Mrs Carmel McLoughlin purchaser of 55 Mary Street, Dublin 1 

Dear Sirs 

We understand that you act for the vendors in this regard. 

We await contract in duplicate with supporting title documentation. 

Please note that we have no authority to enter into a contract on behalf of our client and that no binding contract shall be deemed to exist between the parties until contracts have been executed and exchanged. 

Yours faithfully 

Kevans, solicitors". 

On the 3 October 1994 the defendant's solicitors sent to the plaintiffs' solicitors two copies of a detailed contract incorporating the Law Society's General Conditions of Sale (1991 edition). The covering letter concluded with the following paragraph: 

"Please note that we have no authority to bind our client and no binding contract shall be deemed to exist until such time as the contracts herein in all cases have been executed by all parties and the full deposits accepted by you (sic)." 

On the 25 January 1995 the plaintiffs' solicitors returned both parts of the contract which had been signed by Mrs McLoughlin in trust for Embourg Limited. In their letter they raised six queries in regard to the title. Messrs Hooper and Co replied on the 1 February 1995. In the first paragraph of their letter they said: 

"We thank you for yours of the 25 January 1995 enclosing contracts duly executed by your client and confirm we are arranging to have same executed by our client." 

The rest of the letter was concerned with replying to the six title queries raised in the plaintiffs' solicitors letter of the 25 January 1995. 

Nothing further happened until the 25 April 1995. On that date Messrs Hooper wrote to Messrs Kevans returning the deposit of £5,000 as the defendant was not proceeding with the sale. Their letter crossed with the following letter from Messrs Kevans: 

"Tyler Group Limited to Carmel McLoughlin 

Premises: 55 Mary Street, Dublin 1. 

Dear Sirs 

We presume that the contracts have now been duly completed by your clients and have been returned from England. We would be obliged if you would let us have one part of the contract without further delay, in order that we may proceed with our requisitions on title. 

Yours faithfully 

Kevans, solicitors." 

A plenary summons in which Embourg Limited was named as the sole plaintiff was issued on the 27 Aprll 1995 and a statement of claim was delivered on the 14 June 1995. The claim made in the statement of claim was that there was a written agreement between the parties for the sale of No 55 Mary Street and that the agreement was contained in correspondence between the parties and their respective solicitors and in particular an open letter from the plaintiffs' solicitors to the defendant's solicitors dated the 25 day of January 1995 enclosing a contract duly executed by the plaintiff and the reply of the defendant's solicitors thereto dated the 1 day of February 1995. 

In its defence delivered on the 20 June 1995 the defendant in effect denied that any enforceable contract had ever come into existence. 

The defendant brought a motion for security for costs which resulted in Mrs McLoughlin being joined as a plaintiff. The parties then agreed that the case could be heard on affidavit and it came before the President of the High Court on the 3 July 1995. 

Prior to the date of the hearing one of the directors of the defendant, Michael J Smith, swore an affidavit in which he stated that the defendant had never authorised its solicitors Messrs Hooper and Co, to bind it to any contract for the sale of No 55 Mary Street without the defendant's written authority and that no authority of any kind had ever been given by the defendant to its solicitors. His affidavit included the following paragraph which was heavily relied upon by the plaintiffs in the course of their submissions. 

"4. I say that on the 7 day of February 1995 I, by telephone, instructed Mr John Hooper of Hooper and Company that I had on the 6 day of February sent to him copies of the formal documentation for a sale to the present plaintiff executed on behalf of the dependant but that he Mr Hooper was not to send or communicate the same to the plaintiff herein unless or until he had my prior written authority in that regard. No authority of a kind was ever subsequently given to him or anyone in his firm to do so." 

The President of the High Court dismissed the plaintiffs' claim in an ex tempore judgment. The following extract from counsel's note of the judgment, as approved by the President, sets out the grounds of his decision:- 

"It is common for solicitors to write "subject to contract/contract denied" on their letters and to state in their letters that they do not have authority to bind their clients until such time as the contracts have been executed. The courts must give effect to these caveats. I must also give effect to the intentions of the parties in this case. There is a certain discrepancy between the letters written by the solicitors for the purchaser and the letters written by the solicitors for the vendor. There has been no contract executed and exchanged. There has however been an execution by the purchaser and there has in turn been an execution by the vendor in the circumstances set out in the affidavits. I do not think that the signature by the director of the defendant was a valid execution as contemplated by the contract. I do not think therefore that any legal obligation arose in this case and find that there was no execution of the contract. It was convenient for the director of the defendant company which is a foreign company, to sign the contracts and sent them back to their solicitors whereupon it was held in escrow. The intention was therefore that the contract was not to have legal effect until such time as it was delivered to the plaintiffs' solicitors. I do not think therefore that the contract was executed and accordingly the claim must fail. The vendor is therefore not bound to complete the sale to the purchaser. I direct that the lis pendens be vacated." 

A notice of appeal was served on the 4 July 1995 setting out numerous grounds but most of these were not pursued. The main case made by Mr Salafia on behalf of the plaintiffs was that there was a binding enforceable contract because the two copies of the contract sent to the plaintiffs' solicitors had been signed by Mrs McLoughlin in trust for Embourg Limited and had also been signed by Mr Smith on behalf of the defendant. Mrs Salafia accepted that the solicitors on both sides had made it clear that they had no authority to contract on behalf of their clients and that no binding contract would be deemed to exist until such time as the contract had been executed by all parties, but he claimed that this had happened since the defendant had signed as well as the plaintiffs and accordingly there was a binding contract in existence. He argued that Mrs Smith was not entitled to say that when he signed he did not intend to bind the company. The position had to be looked at objectively, and judging objectively there was a binding contract. 

On behalf of the defendant, Mr Durcan submitted that this was not a case about a note or memorandum sufficient to satisfy the Statute of Frauds. The issue was whether there was in existence an enforceable contract. He asked where was it to be found, and submitted that it must be either in the correspondence, or must have arisen by reason of Mr Smith having signed both parts of the contract on behalf of the defendant. He dealt first with the possibility of there being a contract in the correspondence. This was the case that had been made in the statement of claim. It was not pursued by Mr Salafia and for a very good reason. In my opinion it was unstateable. Apart from the fact that the defendant's solicitors had no authority to enter into a contract, at no time had they done anything which could be construed as an acceptance of the offer to purchase which came into being when Mrs McLoughlin signed the two parts of the contract, and her solicitors returned them to the defendant's solicitors. So the possibility of a contract concluded by correspondence can be totally ruled out. 

On the question of whether the defendant had become bound by Mr Smith signing the two parts of the contract, Mr Durcan advanced two submissions. Firstly, he argued that there was no contract because no acceptance of the plaintiffs' offer to purchase on the terms of the detailed contracts had ever been communicated to the plaintiffs' solicitors, and communication of the acceptance was essential to the formation of a contract. Secondly, he submitted that it was clearly the intention of the parties that there should be no binding contract until contracts had been exchanged, and this had never occurred. He referred to the fact that in Mr Markey's letter of the 20 September 1994 to Mrs McLoughlin's accountant, the closing date was stated to be "six months from exchange of contracts" and the plaintiffs' solicitors, in their letter of the 28 September 1994 had stated: 

"Please note that we have no authority to enter into a contract on behalf of our client and that no binding contract shall be deemed to exist between the parties until contracts have been executed and exchanged." 

Mr Salafia's response to this was that the question of exchange of contracts was a red herring. There was no evidence about it, and it was not a feature of conveyancing practice in Ireland. He submitted that it had been improper for Mr Smith to have concealed the fact that he had executed one part of the contract on behalf of the defendant. 

Having carefully considered the submissions of both sides I am satisfied that those put forward by Mr Durcan are well-founded and should be accepted. 

This is not a case in which it was claimed by the plaintiffs that there was ever an oral agreement for the sale of the property. The case made in the statement of claim was that there was a written agreement contained in correspondence, and the case made at the hearing was that a contract came into being as a result of Mr Smith executing the contract on behalf of the defendant. So what has to be considered is whether there is in existence a written contract to which both parties bound themselves. I have already held that there is no such contract in the correspondence. It only remains to be considered whether the contract signed by both parties is such a contract. 

As I indicated earlier in this judgment, two copies of the detailed contract were sent by the defendant's solicitors to the plaintiffs' solicitors on the 3 October 1994. The despatch of these two copies could not be construed as an offer to sell to the purchaser on the terms stated in the contracts. What the defendant's solicitors were doing was indicating to the plaintiffs that these were the terms on which the defendant was prepared to negotiate with them. And that a binding contract could not be brought into existence by the plaintiffs signing the contracts was made absolutely clear by the last paragraph of the letter. 

"Please note that we have no authority to bind our client and no binding contract shall be deemed to exist until such time as the contracts herein in all cases have been executed by all parties and the full deposits accepted by you (sic)." 

The two parts of the contract duly completed by the plaintiffs were returned to the defendant's solicitors on the 25 January 1995 with a request to return one part duly completed by their clients in early course. The return of the two contracts duly completed was clearly an offer by the plaintiffs to purchase on the terms set out in the contracts. That offer could have been accepted by the defendant by communicating their acceptance of it to the plaintiffs' solicitors. And the form of that communication would have been the sending to the plaintiffs' solicitors of one part of the contract duly executed on behalf of the defendant. But the offer was never in fact accepted. Neither part of the contract signed on behalf of the defendant was ever sent to the plaintiffs' solicitors, so the two parts of the contract signed by the plaintiffs continued to be no more than offers. In the absence of a communicated acceptance no contract ever came into being. 

In the leading case of Carlill v Carbolic Smokeball Company [1893] 1 QB 256 Lindley LJ said in the course of his judgment:- 

"Unquestionably, as a general proposition, when an offer is made, it is necessary in order to make a binding contract, not only that it should be accepted, but that the acceptance should be notified." 

Since the defendant never communicated to the plaintiffs an acceptance of the plaintiffs' offer to purchase, no contract ever came into existence and so there is no contract of which the plaintiffs could claim specific performance. 

It follows that the plaintiffs' appeal must be dismissed on the grounds that there was never any contract between the plaintiffs and the defendant. 

In my opinion it must also be dismissed on the second ground urged by Mr Durcan, namely, that no binding agreement came into existence because contracts had never been exchanged. 

Mr Salafia contended that the exchange of contracts was an English practice and was not a feature of Irish conveyancing practice. Accordingly, it had no relevance to the issue before the Court. The first part of this contention would appear to be correct but, having regard to the special facts in this case, not the conclusion drawn from it. In Mulhall v Horan [1981] IR 364 Keane J said in his judgment at p 377/378 in commenting on the case of Eccles v Bryant and Pollock [1948] I Ch 93:- 

"In this latter case, indeed, it was made clear that, in England at all events, where parties enter into an agreement for the sale of real property "subject to contract", the contract is not complete until the parties have exchanged their copies in accordance with ordinary conveyancing practice in that country. Accordingly, in that case, even though the vendor's solicitors had signed the contract, it was held that the fact that no exchange of contracts had taken place was sufficient to prevent an enforceable contract from coming into being. In this country, however, the practice of exchanging contracts is not so universally followed as in England, at all events outside Dublin, as is borne out by the evidence of Mr McCarroll, the very experienced solicitor for the plaintiffs." 

It is clear from this passage that the practice of exchanging contracts is a well-established feature of conveyancing practice in England and, while not universally followed in this country "at all events outside Dublin", it is obviously a practice which would be well-known to members of the legal profession, particularly those practising in Dublin. This is a very relevant consideration in the present case because the Court is not being asked to decide in the abstract if the English practice should be followed. The issue is whether in the light of the negotiations between the parties, and their conduct, it was their intention that it should be. 

The importance of the intention of the parties when, as here, negotiations were being conducted "subject to contract", was stressed by Lord Greene MR in Eccles v Bryant and Pollock [1948] 1 Ch 93. He said in his judgment at p 99: 

"When parties are proposing to enter into a contract, the manner in which the contract is to be created so as to bind them must be gathered from the intentions of the parties express or implied. In such a contract as this, there is a well-known common and customary method of dealing; namely, by exchange, and anyone who contemplates that method of dealing cannot contemplate the coming into existence of a binding contract before the exchange takes place." 

In that case the intention of the parties was ascertained from the existence of a method of dealing which was well-known to both parties, namely, that the manner in which parties bound themselves in connection with a sale of land was by an exchange of contracts. In the present case, the intention of the parties has to be gathered from the correspondence between them and their conduct and I am satisfied that when these are examined they establish that their intention was that no contract should come into existence until contracts had been exchanged. 

In the first letter sent by Mr Markey to Mr Herlihy, there was a reference to the completion date being "six months from exchange of contracts." This letter was no doubt given to the plaintiffs' solicitors and there was no objection to the clear implication from this that the contract was to be finalised by an exchange of contracts. On the contrary, the plaintiffs' solicitors stipulated in their letter of the 28September 1994 that "no binding contract shall be deemed to exist between the parties until contracts have been executed and exchanged." What happened subsequently was consistent with the parties intention being as I have indicated. In their letter of the 28 September 1994 the plaintiffs' solicitors stated: "We await contracts in duplicate with supporting title documents". The defendant's solicitors then prepared the contract in duplicate and sent both copies to the purchaser's solicitors and they returned them executed on behalf of the purchaser. No doubt it would have been more strictly in accord with the English practice if the vendor's solicitors had sent one copy only of the contract to the purchaser's solicitors and retained the other copy for execution by the vendor, but this deviation did not prevent the situation from being that until the vendor had executed one of the two copies which had been returned by the purchaser's solicitors, and sent it to the purchaser's solicitors, there was no exchange of contracts. And until that had been done no binding contract came into existence. 

The usual practice adopted in this country in regard to the execution of a contract for the sale of land is described as follows in Wylie's "Irish Conveyancing Law" at p 377:- 

"Normally what happens is that the purchaser's solicitor gets its client to sign the contract, as approved, first and sends this signed copy to the vendor or his solicitor for "acceptance". This may be accompanied by a letter from the purchaser's solicitor to the effect that his client will not regard himself as bound by the contract until the vendor has signed the contract." 

This was clearly not the practice adopted in the present case as two copies of the contract were sent to the purchaser's solicitors and it was clearly the intention of the parties that one of the copies returned signed by the purchaser would be signed by the vendor and sent back to the purchaser's solicitors. This would have effected the intended exchange of contracts and as this was never done no binding contract came into existence. 

It should be noted that the conclusion I have reached was determined by the special facts of this case. It does not follow that whenever there is a sale subject to contract no binding contract comes into existence until contracts have been exchanged. Each case must be decided on its own facts. 

I would affirm the order of the learned President of the High Court and dismiss this appeal.