(PROVINE COURT)

HAMZA EL MEDANI v. SHELL CO.

 PC-CS-636-1959 El Obeid

 Principles

·  Contract—Damages—Foreseeable losses—Loss of profits recoverable

Contract—Offer and acceptance—Construction of letter to ascertain whether contract complete
Contract—Frustration—Frustrating event has to be fundamental and beyond the contemplation of the parties
Contract—Breach—Repudiation

In reply to a tender of defendants, the plaintiff offered to transport defendants’ petroleum. Defendants accepted this offer by a letter including the sentence:
“This letter should be considered as final acceptance of your offer until the necessary contract is concluded in due course.” Acting upon this letter, the plaintiff purchased and prepared a truck for transporting the petroleum. Defendants then repudiated the agreement. Plaintiff claimed damages for loss of profits, alleging that defendants, by their repudiation, had breached the contract.
Defendant pleaded that their letter of acceptance did not create a binding contract but was conditional upon the conclusion of a formal contract. Defendants also alleged that in any case, the contract had been frustrated by the refusal of the Government to allow to them the necessary land for building petrol pumps.
Held: (i) A letter of acceptance stating that it “should be considered as final acceptance . . . until the necessary contract is concluded . . .“ is binding and forms a contract.
(ii) Government refusal of land for building petrol pumps by defendant oil company was not frustration of a contract for petrol transport, as this was not fundamental to the performance of the contract and it was not beyond the contemplation of the parties.
(iii) Damages for breach of contract for petrol transport includes an amount representing plaintiff’s loss of business profits which he would have earned in the normal course of business had the Contract been performed.

Judgment

Advocates: Mohamed Yousef, for Greenwood ... for defendant

Salah El Din Hassan, Acting Province Judge. June 29, 1960 :—Plaintiff is asking for the recovery of £S.1,788.000m/ms being damages specifically loss of business profits sustained as a result of breach of contract of carriage between him and defendants concluded on May 3, 1958. The details of the claim are as follows:

(a) In April 1958, the defendants called for tenders for the transport of bulk petroleum products from El Obeid to their filling stations at Nahud and Abu Zabad indicating the minimum and the maximum amounts to be transported to each filling station. The call for tender was in writing (Exhibit A)

(b) On April 18, 1958, plaintiff submitted his written offer Exhibit B offering the following rates: 15m/ms per gallon in Summer to Nahud; 24m/ms per gallon in Autumn to Nahud; 11m/ms per gallon in Summer to Abu Zabad; 17m/ms per gallon in Autumn to Abu Zabad.

(c) On May 3, 1958, defendants accepted plaintiff’s offer, vide their written letter (Exhibit C) the last paragraph of which reads: “This letter should be considered as final acceptance of your offer until the necessary contract is concluded in due course.” [italics  added.]

(d) Acting upon this acceptance the plaintiff purchased the necessary truck and prepared it for the transport according to the directions embodied in (Exhibit A) in case of acceptance.

(e) By a letter dated January 16,1959 addressed to plaintiff the defendants unilaterally rescinded the said transport agreement, whence this dispute.

The defendants represented by advocate Mohamed Yousef for advocate Greenwood, capriciously denied all the allegations of facts contained in the plaint; a thing which they ought not to have done in order to reduce the dispute to few and certain points of law. As a result of this denial I was compelled to frame seven issues as is shown on pages 11—12 of the record; otherwise only two or three issues at most would have exhausted the dispute.

Evidence was heard at length for both sides.

All the points of fact were proved by ample evidence and they are:

(a) it was proved that defendants called for tenders, vide their written “Call for tender” dated March 18, 1958 (Exhibit A filed); (b) it was proved that plaintiff submitted his offer as shown in Exhibit B, dated April 18, 1958; (c) defendants accepted the quotation of plaintiff vide their letter dated May 3, 1958 (Exhibit C); (d) plaintiff prepared the necessary truck; (e) defendants by a letter dated January 16, ‘1959. informed plaintiff that they started building a depot at Abu Zabad and therefore no transport facilities from El Obeid will be required (Exhibit D)

Both advocates made long submissions and the points upon which they are at loggerheads can be summarised as follows: (i) was there a complete contract between plaintiff and defendants? (2) If yes, was this contract discharged by frustration? (3) If not, did defendants commit a breach of contract? (4) If yes, what are the damages to which plaintiff is entitled to receive?

As to (i) above: Advocate for the defendants in his submissions admitted that the defendants, vide their letter dated May 3, 1958 (Exhibit B), accepted the quotation made by plaintiff and at the same time he contended that this acceptance does not create a binding contract for the following reasons: (a) In the call for tenders made by defendants the following clause was inserted (this work will be covered by a contract which will be concluded with the successful tenderer). (b) The company’s letter of acceptance dated May 3, 1958, included the following clause, “This letter should be considered as final acceptance of your offer until the necessary contract is concluded in due course.”

The learned advocate for the defendants alleges that according to these clauses the conclusion of a formal contract is a condition for the defendants’ acceptance and that a conditional assent to an offer does not constitute an acceptance. He made certain quotations from p. 32 of Cheshire on Contract in support of this.

The plaintiffs’ advocate rejected this contention on the ground that the defendants’ letter of acceptance (Exhibit C) amounts to a final acceptance according to its own wording and that the preparation of a written contract in due course with the successful tenderer is a mere incident in the performance of an already binding contract.

As I see it the defendants’ letter of acceptance document (Exhibit C) did create a binding contract between plaintiff and defendant.

Cheshire and Fifoot, Law of Contract 32 (4th ed.) state: “Unless there is cogent evidence of a contrary intention the courts construe these words so as to postpone the incidence of liability until a final document has been drafted and signed.”

It must therefore be in each case a question of construction whether the parties intended to undertake immediate, if temporary, obligations or whether they were suspending all liability until the conclusion of formalities. In other words, have they made the operation of their contract conditional upon the examination of a further document, in which case these obligations will be suspended, or have they made an immediately binding agreement, though one which is later to be merged at a more formal contract? (Cheshire and Fifoot, supra, 33)

Looking into this case, we have to extract the intention of the parties both from the terms of their correspondence and from the circumstances which surround and follow it. Now then, referring to the correspondence exchanged, the relevant documents are the call for tenders and the accept ance by defendants of plaintiff’s offer. In the call for tender the fourth paragraph runs as follows: ‘The successful tenderer will be required to be able to produce the vehicle in Khartoum in good working condition within seven days from the date of acceptance of his quotation.” [italics added]

The plaintiff’s quotations were accepted on March 5, 1958,

It is notoriously clear that defendants intended to be immediately bound, as they have required action to be taken immediately seven days after the acceptance. Moreover, plaintiff has actually bought the car and shown it to defendants in Khartoum . Again, the wording of the acceptance by defendants, “This letter shall be considered as final acceptance of your offer until the necessary contract is concluded in due course.” surely reveals that defendants intended to undertake an immediate, if temporary, obligation which would later be merged into a mere formal contract. If defendants used the words “ subject to contract “ instead of “ until the necessary contract,” the position may have needed more investigation as to their precise intention.

Secondly, the defendants’ advocate tried to attack the contract on the grounds that the amounts to be transported were not fixed and that the defendants only made an estimated maximum and minimum, which does not comprise an acceptance in the legal sense so as to produce a binding contract. The defendants’ advocate, to support his contention, cited quotations from Cheshire and Fifoot, supra’, at 36; 1 cannot say, to create a deliberate misunderstanding as commented by defendants’ advocate, but at least I think the quotations were erroneously made. Defendants’ advocate cited the second half of an illustration in the book and totally ignored the first half, which corresponds to this case. In this case the defendants’ company stated in their call for tender that they will definitely require the transportation of at least 8,000 gallons to Nahud and 4,000 gallons to Abu Zabad every month. The words “ may require” were never used by defendants.

A binding contract having been proved, we step further to see whether this contract was discharged by frustration. This point was not in issue as it has never been raised in the proceedings; nevertheless I shall discuss it. Defendants’ advocate alleged that the authorities concerned delayed the allotment of the land to defendants, which made it impossible for the defendants to construct the petrol pumps.

On p. 459 of Cheshire and Fifoot, supra, frustration was defined as the premature determination of an a between parties; lawfully entered into and in course of operation at the time of its premature determination, owing to the occurrence of an intervening event or change of circumstances so fundamental as to be regarded by the law as striking at the root of the agreement, and as entirely beyond what was contemplated by the parties.’

In this case no mention was ever made whether direct or indirect about the authorities’ approval; on the contrary, the defendants put it in black and white on their call for tenders: “There will be storage tanks of approximately 4,000 gallons at each destination into which lorries will discharge.” So it can never be said that the Government’s refusal was outside the contemplation of the plaintiff. Moreover, the Government’s approval or disapproval is not an impossibility or a catastrophe: but it is a matter of which defendants are fully aware and they could have provided for it in their own call for tenders or agreement. They decided to take the risk and they should be bold enough to face it.

In addition to this, when we re-read the document by which defendants rescinded the agreement, in paragraph 2 we notice that defendants have changed their plan by building a depot at Abu Zabad, as a consequence of which, to put in their own words, No transport facilities from El Obeid would therefore be required.” They have completely changed the venture, and accordingly if even the approval were speedily given, they no longer need any transport facilities from El Obeid. So it is very evident that there was no frustrating event and defendants have intentionally breached their agreement,

There remains the last and most difficult part of the case, i.e., the damages to which plaintiff is entitled.

The question of damages is governed by the famous rule in the case of Hadley v. Baxendale (1854) 9 Exch. 341, which runs as follows: “Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.” [italics added.]

The first question therefore is, what loss arises in the usual course of things from the breach of a contract where there is nothing exceptional known to the defendant? What as a reasonable man is he expected to foresee? It is impossible to give a general answer, for just as contracts vary infinitely in character so also do the types of loss that their non- performance normally causes. In this particular case before me the defendants are a company and the plaintiff is a contractor; specifically a transport contractor. The nature of plaintiff’s business is well known to the company. The defendants as reasonable business men are expected to foresee that their breach of this contract at least deprives plaintiff of his business profits in this venture. Accordingly I find that plaintiff is entitled to receive the loss of his business profits had this contract been carried out,

he being a particular dealer in such contracts. See the case of W. L. Thompson Ltd. v. R. Robinson (Gunmakers) Ltd. [1955] 1 All E.R. 154

It being settled that plaintiff is entitled to all his business profits in this venture, we should not forget that the law imposes a duty upon the plaintiff to take all reasonable steps to mitigate the loss caused by the breach of contract.

This limitation is a general principle of law and I do not think it applies to this case. For in this case what ensues from the breach in the usual course of things is that he loses the profit that he would have made had the contract been completed and executed. It is no answer to say that he could have engaged himself in another contract as he could have employed the lorry in any other business, for even if he has been successful the fact remains that he has profited from one venture instead of two ventures. Moreover plaintiff did not claim any damage sustained as a result of his buying a lorry for the execution of the contract, in this he relieved the court from going deeply into the question of mitigation.

The loss of business profits of the plaintiff shall be calculated as follows:

Plaintiff was supposed to carry over a period of one year the following amounts monthly to Nahud and Abu Zabad: (a) Nahud, minimum of 8,000 gallons; maximum of 12,000 gallons. (b) Abu Zabad, minimum of 4,000 gallons; maximum of 8,000 gallons.

My own interpretation for the mention of the minimum and maximum amounts by the company is as follows: The defendants mentioned the minimum amounts to show that they are bound to provide plaintiff with the minimum if the worst comes to the worst. They mentioned the maximum to bind plaintiff, i.e., in case they provide 12,000 to Nahud and 8.000 to Abu Zabad, plaintiff cannot say that he has no means to transport the whole quantity and in case he fails they can transport it and charge him with the difference between the suk rates and the contract rates.

Accordingly, I find that plaintiff’s business profits are to be calculated on the minimum quantities by which the defendants are bound, so long as the worst has come to the worst. I shall calculate the cost of transport according to the contract rates which are not in dispute in Summer and Autumn, and then I shall deduct  the expenses which would be incurred by plaintiff in carrying out the transport.

The contract rates are the following: (i) in Summer he is paid £S.30.000m/ms (ii) in Autumn he is paid £S.48,000m/ms. One trip to Abu Zabad carrying 2,000 gallons: (i) in Summer he is paid £S.22.000m/ms (ii) in Autumn he is paid £S.34.000m/ms.

The plaintiff alleged that a trip to Nahud to and fro will cost him in Summer £S.15,000 including wear and tear and in Autumn it will cost him £S.24.000m/ms. Also he alleged that to Abu Zabad the trip will cost him in Summer £S.11,000m/ms and in Autumn £S.17,000m/ms

Plaintiff’s allegations were supported by reliable evidence that of P.W. 2 and P.W. 3 who are well-known transport contractors in this province. It is noticeable that neither plaintiff nor his witnesses in these calculations referred to the question of the driver’s salary and that of his assistants’. but it has been established that a driver and his two assistants will Cost £S.30.000m/ms a month. On the assumption that half the quantity to Nahud and Abu Zabad will be transported in Summer and half in Autumn it shall get the following figures:

Nahud

Summer. Plaintiff has to transport 48000 gallons. For this he needs 24 trips (2,000 gallons each trip). Accordingly he is entitled to receive from the company £S.30x24=

Autumn. He will transport same quantity and

therefore he will receive from the company

24X48=           . .         .           .           £S.z,

Abu      Zabad  £S.I

Summer. Plaintiff must transport 24,000 gallons. To do this he has to make 12 trips: each month two trips. He shall be entitled to receive

12X22= .         . .

.4utumn. He will transport same amount and vill

therefore receive from defendants 12 X 34=

This sum plus Nahud which is

The expenses have to be deducted from this amount:

(a) 24 trips in Summer to Nahud will cost 24X lç= £S.36o.000m/ms

(b)        24 trips in Autumn will cost 24X 24=    £S.

(c)        12 trips in Summer to Abu Zabad will cost

12X     .           .           .

(d)        12 trips in Autumn will cost 12 X 17=

£S.

£S. 2o4.000m / ms

£S.r

To these expenses I shall add what has been forgotten by plaintiff and that is the salary of the driver and his

two assistants for one year, i.e., 12 X 30=         .           .           £S.36o.ooom/ms

Total expenses. . . £S.r.6

By deducting this from actual entitlements of plaintiff we get plaintiff’s business profits as follows:

£S.2.c.H.000rn/ms money due

£S.I,632.ooom/ms expenses

£S. 2 .ooom/ ms

£S.72o.ooom/ms£ S.264.ooom/ms  £S.4o8.ooom/ms£   .ooom/ms

£S.1.872.ooom/mS£ S.2 io6

 Accordingly I shall deliver judgment in favour of plaintiff for the sum of £S.912.000m/ms with proportionate court fees and advocate costs,