Case: Tolhurst v The Associated Portland Cement Manufacturers (1900) Limited [1903] AC 414
Outcome: distinguished
sought to draw assistance from the decision of the House of Lords in Tolhurst v The Associated Portland Cement Manufacturers (1900) Limited [1903] AC 414 ( Tolhurst ). Tolhurst involved a contract for the supply of chalk at a stipulated price over a 50 year period. In 1898, Alfred Tolhurst entered into a long term agreement with a cement manufacturer, the Imperial Portland Cement Company, to supply chalk on a weekly basis from the extensive chalk quarries located on his land. The long term arrangement was to both parties' benefit, securing a regular market for Mr Tolhurst and a regular source of supply for Imperial. Two years later in 1900, Imperial sold its cement business to another company, the Associated Portland Cement Manufacturers (1900) Limited, assigned the benefit of the chalk agreement to Associated and went into voluntary liquidation. Mr Tolhurst, while prepared to supply to Associated, was unwilling to do so at the price stipulated in the chalk agreement. Nevertheless, he supplied chalk on credit and brought an action against Associated to recover a higher price. He claimed that Imperial had by its conduct rescinded the chalk agreement and sought a declaration that he was not bound to supply to Associated, as the purported assignee, at the stipulated contract price. Associated and Imperial brought a separate action seeking declarations that the agreement was valid and subsisting and that Mr Tolhurst was bound to supply chalk to Associated at the contract price. On appeal, the House of Lords upheld the Court of Appeal's decision to grant the declarations sought by Imperial and Associated. The House of Lords considered that the terms of the chalk agreement, properly construed, permitted the benefit of the chalk agreement to be assigned. Lord Macnaghten, delivering the leading opinion, observed that contractual rights are not always assignable, for example where the contract involves an element of personal skill or confidence on the part of the original parties. However in the circumstances their Lordships held that the chalk agreement did not require personal performance by either Imperial or Tolhurst and the rights under it were assignable by Imperial, notwithstanding the absence of any express provision regarding assignment in the agreement. Adnunat referred to two particular passages in Lord Macnaghten's judgment. At 419, his Lordship said: [The chalk agreement] is expressed to be made between Alfred Tolhurst and the Imperial Company. They, and they only, are named as the persons to perform the contract. From beginning to end of the instrument, if the contract be taken literally, there is not one word pointing to the continued existence of the contract in the hands of any other person, either by succession or substitution. ... And yet the contract is to endure for the period of fifty years, or if the supply of chalk in the quarries does not hold out so long, it is to last for thirty-five years at least. Now, when it is borne in mind that the Imperial Company must have been induced to establish its works at Northfleet by the prospect of the advantages flowing from immediate connection with Tolhurst's quarries, and that the contract in substance amounts to a contract for the sale of all the chalk in those quarries by periodical deliveries (less what Tolhurst might sell elsewhere), it is plain that it could not have been within the contemplation of the parties that the company would lose the benefit of the contract if anything happened to Tolhurst, or that Tolhurst would lose the benefit of the market which the contract provided for him at his very door in the event of the company parting with its undertaking, as it was authorized to do by its memorandum . (Emphasis added.) In this case, Adnunat contended that the draftsperson of the Settlement Deed has made explicit (in the enurement clause (cl 17)) what Lord Macnaghten (at [47] above) considered to be the implicit intention of the parties in Tolhurst [1903] AC 414 , namely that the parties to the Settlement Deed were to include any successors of the original parties. Adnunat acknowledged that, unlike this case, Tolhurst [1903] AC 414 was concerned with an action by an assignee to enforce the chalk agreement against an original party. However, in reliance largely on the passage quoted at [46] above (in particular the last sentence), it said that this case was otherwise "on all fours with the facts in Tolhurst " and submitted that it was irrelevant, in determining whether there was a mutual intention to contract, which one of the two parties sought to enforce the agreement (ie the assignee or the original debtor). This latter proposition requires some further explanation. Adnunat appeared to place significance on the fact that the House of Lords had made it a condition of the assignee's entitlement to the benefit of the agreement that it perform Imperial's obligations (ie to pay for the chalk): see [1903] AC 414 at 421 (Lord Macnaghten). This, said Adnunat, was significant because Imperial had been dissolved (and existed in name only) and the House of Lords, while observing that it is not possible to assign the burden of a contract without the original debtor's consent, was prepared in the circumstances to find that both Tolhurst and Associated had effectively consented to Associated taking the benefit, along with the burden, of the chalk agreement. This conclusion was reached notwithstanding that Mr Tolhurst had never previously discussed or agreed terms with Associated directly. Mr Tolhurst's consent arose from the terms of the chalk agreement, while Associated's consent was self-evident from the assignment and its preparedness to perform the agreement in place of Imperial. This was an example, said Adnunat, of how a contractual burden may be transferred to a third party without there being a formal novation giving rise to new rights and obligations as between the original debtor (Tolhurst) and the new party assignee (Associated). Applying that result to this case, Adnunat contended that the necessary consent as between ITW and Adnunat should be found given the existence of the enurement clause and ITW's conduct in accepting both the benefit and burden of the Settlement Deed. In my view Tolhurst [1903] AC 414 provides little assistance in resolving the dispute in this case. The issue in Tolhurst [1903] AC 414 was whether the rights created by the chalk agreement were capable of assignment. Once it was decided that they were, it followed as a relatively straightforward matter that the party to whom the rights had been assigned was capable of enforcing them against the original debtor. That is not this case. Adnunat's case is not based on an assignment of the Settlement Deed. Adnunat seeks to enforce the terms of the Deed against a third party, ITW. Its ability to do so depends on there being a finding that a new bilateral contract exists between it and ITW, on the same or substantially the same terms as the Settlement Deed. Rather than it being irrelevant, it is a critical difference here that there was no assignment of the relevant contractual benefit and ITW (unlike Mr Tolhurst) had nothing to do with the original negotiation and formation of the Settlement Deed. Here, the consent of the party against whom the alleged agreement is to be enforced does not turn on the construction of that agreement (or, more particularly, its assignability), as was the case in Tolhurst [1903] AC 414. Instead, this case requires a detailed factual analysis of the parties' conduct, and correspondence, in order to determine whether ITW (a stranger to the original contract) truly made its consent manifest to Adnunat (as the original contracting party). It is true that in Tolhurst [1903] AC 414 the House of Lords considered it unnecessary that the assignor (Imperial) be made a party to Associated's action and held in effect that the assignee itself was obliged to pay for the chalk, if it were to have the benefit of the chalk agreement. The question of necessary parties and the appropriate relief to be given to the assignee in Tolhurst [1903] AC 414 were dictated strongly by the particular circumstances. Imperial was in liquidation, no longer had a board of directors and was deemed by the Companies Act 1862 (UK) to have been dissolved. In the absence of the assignor in all but name, the House of Lords considered it appropriate to grant a declaration that the assignee was entitled to the benefit of the agreement, but only so long as it was willing to pay for the chalk, in place of the assignor. In so doing, their Lordships recognised that in ordinary circumstances an assignor would need to be made a party by an assignee seeking to enforce an agreement: see [1903] AC 414 at 420 (Lord Macnaghten). All of this seems to me to provide little assistance to Adnunat in this case. The House of Lords in imposing the payment condition on Associated was doing no more than fashioning relief, in exercise of its equitable jurisdiction, to ensure an equitable result in the circumstances of that case. Given their Lordship's conclusion as to the assignability of the rights under the agreement, it followed that it would make no difference to Tolhurst if Imperial's obligation to pay for the chalk was performed, albeit vicariously, by Associated. This was not to determine that a new contract existed between Tolhurst and Associated but rather that the original agreement subsisted and was capable of enforcement by Associated as assignee. Having dealt with what I consider are the main difficulties with Adnunat's motion, I turn to some of the key factual matters it relied on. First, it will be recalled that the letter dated 1 March 2005 giving notice of the transfer of business was addressed to Adnunat (as the contracting entity) and stated that the sender was looking forward to "continuing our relationship with you". It thus referred to an existing "relationship" and expressed a desire that that relationship would continue. The letter also stated that the change "reflects only a change in the legal ownership of the Reid business". That statement appears to have been made to explain that the new owner would operate the Reid business separately from its other business units. The letter makes no reference to the Settlement Deed or, significantly, to any possible novation of the Deed (a matter which, it might reasonably be inferred, was in the mind of the new owner, given the terms of the Business Agreement). Once all relevant evidence is in, one might conclude that the letter, viewed from the perspective of the reasonable observer and taking into account all of ITW's conduct after 1 March, demonstrates an intention to take on and perform the terms of the Settlement Deed. However at this stage I do not accept that that is the only reasonable conclusion to reach. It seems to me reasonably arguable that the import of the letter, which is apparently in a standard form, amounts to no more than putting each previous supplier to Reid on notice that Reid's business had been sold and would now be operated by a new entity. A reasonable recipient of the letter might in that context wonder what effect that was to have on any existing contracts, rather than assume that the new owner would as a matter of course observe existing contracts. In my opinion it is not so clear from the letter and the other relevant conduct that these arguments have no reasonable prospects of success.