R & J. Dempster v Motherwell Bridge and Engineering Company
| Jurisdiction | Scotland |
| Judgment Date | 03 July 1964 |
| Date | 03 July 1964 |
| Docket Number | No. 28. |
| Court | Court of Session (Inner House - First Division) |
1ST DIVISION.
Lord Wheatley.
Contract—Constitution—Agreement by company to reserve materials and working capacity to execute orders to be placed by other company—Prices to be settled later—"Open order"—Whether binding contract—Breach of contract.
In an action of damages for breach of contract it was established that, owing to a national steel shortage in the years 1952 to 1957, which led to supplies of steel being placed on a quota system, the defenders, who were manufacturers of oil storage tanks, for which there was then a heavy demand, in 1956 subcontracted to the pursuers orders which took up to 910 tons of the pursuers' quota of steel for that year. Owing to the pressure of demand for oil tanks and the shortage of steel, prices were at that time regarded as a minor consideration and, partly for that reason, the practice was for oil storage companies to place orders for tanks on an "open order" basis, i.e., to send the manufacturers the orders and drawings for tanks and to adjust the prices later. The orders subcontracted to the pursuers by the defenders in 1956 were on an open order basis. The defenders, having ascertained that the pursuers' quota for 1957 was almost wholly committed for other work, entered into negotiations with them regarding orders in future years. As a result of these negotiations the pursuers sent to the defenders a letter dated 18th December 1956, in which they stated: "We confirm telephonic conversations of last week and today when it was agreed to include in our programme on your behalf for 1958, 1959 and 1960 one thousand tons of tankage in each of these years, thus making a total commitment of 3000 tons for the three years named. On your part you promised to confirm this commitment…The prices to be mutually settled at a later and appropriate date." The defenders replied, by letter dated 21st December 1956: "We wish to acknowledge with thanks your letter of 18th December 1956…and have pleasure in confirming that we will issue orders in due course to you for 1000 tons of tankage in each of the following years:—1958, 1959 and 1960." The demand for oil tanks having fallen away, no orders for any of the 3000 tons of tankage were ever placed with the pursuers. In answer to the claim that they were in breach of contract, the defenders maintained on sundry grounds that no concluded contract resulted from the letters, in particular because these did not fix any price.
Held that the letters constituted a concluded contract between the parties, the obligations undertaken by them being expressed in unconditional terms and representing, in the existing market conditions, a sound and intelligible business proposition for each; and that, in view of the nature of the contract, which continued the system of open orders previously operated by the parties, the omission to fix any price was not inconsistent with contractual obligation.
Observed by Lord Guthrie, with reference to a submission by the defenders that such an "open order" could not create a binding contract between the parties: "The object of our law of contract is to facilitate the transactions of commercial men, and not to create obstacles in the way of solving practical problems arising out of the circumstances confronting them, or to expose them to unnecessary pitfalls. I know of no rule of law which prevents men from entering into special agreements to meet the requirements of special circumstances."
Damages—Interest—Claim for interest from date of award to date of refusal of reclaiming motion—Interest on Damages (Scotland) Act, 1958 (6 and 7 Eliz. II, cap. 61), sec. 1 (1).
The Interest on Damages (Scotland) Act, 1958, enacts by sec. 1:—"(1) Where the court having jurisdiction in any action for damages pronounces an interlocutor decerning for payment by any person of a sum of money as damages, the interlocutor may, if the circumstances warrant such a course, include decree for payment by that person of interest on the sum or any part thereof at such rate as may be specified in the interlocutor, from such date as may be so specified (being a date not earlier than the date on which the action was commenced against that person) until the date of the interlocutor."
In an action of damages for breach of contract the Lord Ordinary awarded the pursuers damages of £50,000, and, on a reclaiming motion by the defenders, the Court adhered. The pursuers having moved for an award of interest on the damages as from the date of the Lord Ordinary's interlocutor,—
Held that the 1958 Act did not introduce any general rule regarding the awarding of interest, but gave the court power, if in the exercise of its discretion it saw fit to do so, to vary the normal rules regarding the payment of interest in the light of special circumstances; and that, there being no such circumstances in the present case, the motion fell to be refused.
R. & J. Dempster Limited brought an action against the Motherwell Bridge and Engineering Company Limited, in which they concluded for damages of £50,000, on the ground of breach of contract. The following narrative of the facts is taken from the opinion of the Lord Ordinary (Wheatley):—"The pursuers seek damages from the defenders in respect of loss said to have been occasioned to them as a result of an alleged breach of contract. The pursuers are manufacturers of gas-holders and other tanks. The defenders are also manufacturers of tanks and, in particular, of tanks for oil storage. The background against which the parties are alleged to have entered into a contract which forms the basis of the present action can be briefly stated. In 1956 there was a shortage of steel in Britain, as a result of which manufacturers of steel products were placed on a quota system for the supply of steel from the steel mill owners. At the same time there was a heavy demand for oil tanks from the various oil companies. The defenders, who are a much larger concern than the pursuers, had a fairly large business in the supply of oil tanks. The shortage of steel, limited by their quota, made it impossible for the defenders to implement the demands from their customers for oil tanks. In that situation they looked around for other concerns which might be able to accept subcontracts from them for the manufacture or fabrication of such oil tanks from steel within the quota of the subcontractors. The pursuers were one such concern, and during 1956 the defenders subcontracted to them a certain amount of work, involving 910 tons of steel, for the construction of oil tanks of varying sizes. This was a relatively new line of country for the pursuers, whose work in this field had been mainly concentrated on the fabrication of gas tanks, and the consequence was that their prices for the work done under the subcontracts were higher than those which the defenders would have charged had they been carrying out the contracts themselves. The urgency of the oil companies for fabrication and delivery of oil tanks and the limited amount of steel available for such work appear to have made price a lesser consideration than it would otherwise have been, and orders were placed on an “open order” basis, that is, the specifications were sent to the pursuers and the jobs were started on the understanding that the prices would be worked out at a later date, as in fact they were. This was an exception to the normal practice, where orders were only completed as binding agreements after specifications and quotations had been exchanged and prices fixed. This state of affairs still existed in December 1956, when the crucial negotiations took place between the representatives of the pursuers and the representatives of the defenders. There seems little doubt, and I certainly have none, that these negotiations proceeded on the basis that the existing steel shortage and the heavy demand for oil tanks would continue into the indefinite future, and that the defenders were anxious to make provision for an extension of the arrangement with the pursuers, whereby a substantial portion of the pursuers' steel allocation could be used in subcontracts to enable the defenders to satisfy the demands of their own customers, namely, the oil companies. While such a state of affairs lasted, “open orders” were to be expected. On the other side, the pursuers were obviously happy to have such an arrangement because of its certainty, rather than having to rely on indeterminate orders from their own customers in respect of the same steel. Verbal conversations took place on this subject between Mr Conley on behalf of the pursuers and Mr Baxter on behalf of the defenders, and it is a matter of agreement that the verbal communings are reflected in the letters passing between the parties dated 18th December 1956 and 21st December 1956, which are the measure of the arrangement which was made between them. The pursuers maintain that these letters constitute a legal and binding contract between the parties, and it is on the ground that the defenders failed to implement their obligations under this contract, to the loss of the pursuers, that the present action is based. The defenders submit that no legal or binding contract was constituted by these letters, and certainly not a contract of the type founded upon by the pursuers. The…letters are as follows. The pursuers' letter states:—
“Oil Storage Tanks
“Programme for 1958, 1959 & 1960
“We confirm telephonic conversations of last week and today when it was agreed to include in our programme on your behalf for 1958, 1959 and 1960, one thousand tons of tankage in each of these years, thus making a total...
To continue reading
Request your trial
- Deutsche Bank (Malaysia) Bhd v MBF Holdings Bhd
-
Prosper Properties Limited V. Robert Bell
...1985 SC (HL) 49 Morrison's Associated Cos Ltd v James Rome & Sons Ltd 1964 SC 160 R. & J. Dempster v Motherwell Bridge and Engineering Co 1964 SC 308 Sanderson v McManus 1997 SC (HL) 55 Scene Estate Ltd. v. Amos [1957] 2 Q.B. 205 Snook v London and West Riding Investments Ltd [1967] 2 QB 78......
-
Macdonald Estates Limited V. Ncp
...the law will give effect to that intention. As Lord Guthrie observed in R & J Dempster Ltd v Motherwell Bridge Engineering Co Ltd 1964 SC 308 at page 332: "The object of our law of contract is to facilitate the transactions of commercial men, and not to create obstacles in the way of solvin......
-
Angus Joinery Limited V. James And Valerie Mckay
...1213 2. British Motor Body Co Ltd v Thomas Shaw (Dundee) Ltd. 1914 SC 922 3. A & J Dempster v Motherwell Bridge and Engineering Co Ltd. 1964 SC 308 4. Diesen v Samson 1971 SLT (Sh Ct) 49. 5. Lawrie v British Steel Corporation 1988 SLT 17 6. Lloyds Bank Ltd v Bamberger 1993 SC 570 7. Martim ......