Harvela Investments Ltd v Royal Trust Company of Canada (C.I.) Ltd

JurisdictionEngland & Wales
CourtHouse of Lords
JudgeLord Fraser of Tullybelton,Lord Diplock,Lord Edmund-Davies,Lord Bridge of Harwich,Lord Templeman
Judgment Date11 July 1985
Judgment citation (vLex)[1985] UKHL J0711-1
Date11 July 1985

[1985] UKHL J0711-1

House of Lords

Lord Fraser of Tullybelton

Lord Diplock

Lord Edmund-Davies

Lord Bridge of Harwich

Lord Templeman

Harvela Investments Limited
(Appellants)
and
Royal Trust Company of Canada (C.I.) Ltd. and Others
(Respondents)
Lord Fraser of Tullybelton

My Lords,

1

I have had the advantage of reading in draft the speech of my noble and learned friend Lord Templeman, and I agree with it. For the reasons stated in it I would allow the appeal and make the declarations and orders proposed by Lord Templeman.

Lord Diplock

My Lords,

2

The unanimous conclusions of the Appellate Committee upon the three issues raised in these proceedings are voiced in the speech of my noble and learned friend, Lord Templeman. In it he sets out the relevant facts which give rise to the three questions of law about legal obligations resulting from the contractual relations between the three parties to the appeal and cross-appeal to this House. These I will call, for brevity, "the construction question" (which is the main question in the appeal by Harvela), "the second contract question," and "the interest question." Since, like the remainder of your Lordships, I am in full agreement with Lord Templeman's speech, the brief observations of my own which I have ventured to append are written on the assumption that what he says has been already read and digested. What I myself am proposing to say should be treated as being in the nature of footnotes to it, which are designed to indicate the way in which those three questions of law and the solutions to them reached by this House are compatible with current juristic analyses of contractual obligations as they have been developed in the course of the last 25 years.

3

The construction question turns upon the wording of the telex of 15 September 1981 referred to by Lord Templeman as "the Invitation" and addressed to both Harvela and Sir Leonard. It was not a mere invitation to negotiate for the sale of the shares in Harvey & Co. Ltd. of which the Vendors were the registered owners in the capacity of trustees. Its legal nature was that of a unilateral or "if" contract, or rather of two unilateral contracts in identical terms to one of which the Vendors and Harvela were the parties as promisor and promisee respectively, while to the other the Vendors were promisor and Sir Leonard was promisee. Such unilateral contracts were made at the time when the Invitation was received by the promisee to whom it was addressed by the Vendors; under neither of them did the promisee, Harvela and Sir Leonard respectively, assume any legal obligation to anyone to do or refrain from doing anything.

4

The Vendors, on the other hand, did assume a legal obligation to the promisee under each contract. That obligation was conditional upon the happening, after the unilateral contract had been made, of an event which was specified in the Invitation; the obligation was to enter into a synallagmatic contract to sell the shares to the promisee, the terms of such synallagmatic contract being also set out in the Invitation. The event upon the happening of which the Vendors' obligation to sell the shares to the promisee arose was the doing by the promisee of an act which was of such a nature that it might be done by either promisee or neither promisee but could not be done by both. The Vendors thus did not by entering into the two unilateral contracts run any risk of assuming legal obligations to enter into conflicting synallagmatic contracts to sell the shares to each promisee.

5

The two unilateral contracts were of short duration; for the condition subsequent to which each was subject was the receipt by the Vendors' solicitors on or before 3 p.m. on the following day, 16 September 1981, of a sealed tender or confidential telex containing an offer by the promisee to buy the shares for a single sum of money in Canadian dollars. If such an offer was received from each of the promisees under their respective contracts, the obligation of the promisor, the Vendors, was to sell the shares to the promisee whose offer was the higher; and any obligation which the promisor had assumed to the promisee under the other unilateral contract came to an end, because the event the happening of which was the condition subsequent to which the Vendors' obligation to sell the shares to that promisee was subject had not happened before the unilateral contract with that promisee expired.

6

Since the Invitation in addition to containing the terms of the unilateral contract also embodied the terms of the synallagmatic contract into which the Vendors undertook to enter upon the happening of the specified event, the consequence of the happening of that event would be to convert the Invitation into a synallagmatic contract between the Vendors and whichever promisee had offered, by sealed tender or confidential telex, the higher sum. To this I shall advert briefly when I come to mention the fresh contract question and the interest question.

7

The answer to the construction question itself, however, appears to me to present no difficulties in so far as it leads to the conclusion that the condition subsequent to which the Vendors' obligations under the unilateral contracts were subject was incapable of being fulfilled by either promisee except by a self-contained offer of a purchase price for the shares expressed as a fixed sum of money which does not necessitate, for its quantification, reference to offers made by any other bidders. I appreciate that this cannot be quite so obvious as I myself have thought throughout, seeing that the Court of Appeal felt compelled to come to a different conclusion.

8

In the case of a unilateral contract, until it is converted, if it ever is, into a synallagmatic contract between promisor and promisee, the only question of construction is: what legal obligation would the words used by the promisor reasonably convey to the promisee that it was the intention of the promisor to assume towards him?

9

The Invitation invited each promisee to whom it was addressed to specify by a fixed hour on the following day the price at which he was willing to accept the promisor's offer to sell the shares upon the terms set out in the Invitation. Such price was to be specified, not by an offer of which the other promisee could obtain knowledge, but by sealed tender or confidential telex the contents of which the promisor undertook should not be disclosed to the other promisee until it was too late for him to make a timeous offer.

10

The whole business purpose of unilateral contracts inviting two or more promisees to submit sealed tenders of a purchase price for property which are not to be disclosed to any competing promisee and imposing on the promisor a legal obligation to transfer the property to the promisee whose tender specifies the highest price is that each promisee should make up his mind as to the maximum sum which he estimates the property is worth to him, not a sum of money the amount of which cannot be determined except by reference to amounts specified in sealed tenders received from other promisees of which, under the terms of the unilateral contract, he is to be denied all knowledge before the time for making his own tender has expired. That business purpose would be defeated by a tender which took the form of an offer to purchase the property not for a specified fixed sum of money but for a sum greater by some specified amount than the fixed sum specified in the sealed tender lodged by some other promisee by the terms of a unilateral contract in identical terms. What other sensible reason could there be for making it a term of each unilateral contract that the promisee should be kept in ignorance of the amounts offered by any other promisees?

11

The business purpose of a unilateral contract of this type providing for sealed tenders and the resulting construction placed upon it of excluding referential bids of the kind made by Sir Leonard was judicially recognised as long ago as 1898 in South Hetton Coal Co. v. Haswell, Shotton and Easington Coal and Coke Co. [1898] 1 Ch. 465, cited by my noble and learned friend, Lord Templeman. Until the judgment of the Court of Appeal in the instant case the ratio decidendi of that judgment of Sir Nathaniel Lindley M.R. has never been doubted or questioned. I agree with Lord Templeman that the grounds on which the Court of Appeal sought to distinguish the instant case from the South Hetton case are unsound. Your Lordships should take this opportunity of confirming the judgment in the South Hetton case and thereby put it beyond further question.

12

My Lords, I turn next to the second contract question, the answer to which appears to me to be self-evident. Sir Leonard claims that a fresh synallagmatic contract coming into existence on 29 September 1981 was made by his offer of 16 September 1981 to buy the shares at a price of $101,000 more than whatever fixed price was bid by Harvela and an acceptance of that offer by the Vendors' telex of 29 September 1981 to Sir Leonard. To create such a fresh contract there must have been an intention on the part of each party, manifested to the other, to assume fresh contractual obligations to the other party which he had not hitherto been under any legal liability to perform. It seems to me to be clear beyond argument that there was no such intention by either party and none was manifested by either party to the other. Sir Leonard's only intention in making his offer of 16 September 1981 was to comply with the condition subsequent specified in the unilateral contract of 15 September and by so doing to convert it into the synallagmatic contract, the terms of which were contained in the Invitation, which he asserted gave rise to the contractual obligation on the part of the Vendors to transfer the shares to him; while the Vendors' only intention, as the wording of...

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