[1972] 1 All ER 79

Snelling v John G Snelling Ltd and others

QUEEN'S BENCH DIVISION

ORMROD J


18, 19, 27 MAY 1971



Contract - Stranger to contract - Benefit of contract - Agreement between creditors of stranger - Agreement to forfeit loans in specified circumstances - Action by one of creditors to enforce debt against stranger after loan forfeited under agreement - All parties before court in proceedings to enforce debt - Stay of proceedings - Dismissal of action - Company - Plaintiff, as director, owed sum on loan account by company - Loan by finance company to company - Covenant by plaintiff and co-directors not to reduce respective loans to company until loan repaid to finance company - Separate agreement between plaintiff and co-directors that if any of them voluntarily resigned before loan repaid to finance company moneys due to him from company would be forfeited - Company not a party to agreement - Plaintiff voluntarily resigning - Plaintiff claiming from company sum owing to him - Co-directors joined as defendants claiming declaration that plaintiff's loan forfeited - Co-directors entitled to judgment - Stay of proceedings against company - Dismissal of plaintiff's action against company - Supreme Court of Judicature (Consolidation) Act 1925, s 41.

The plaintiff and the second and third defendants were brothers and co-directors of the first defendants ('the company'). Prior to 1967 the company had been financed by loans from each of the brothers. In 1968 additional finance was required and, on 22 March, a mortgage on the company's properties was executed under which a finance company agreed to advance £40,000 to the company, repayable over ten years. All three brothers were parties to this mortgage agreement and each of them covenanted with the mortgagees that they would not reduce the amounts of their respective loans to the company below the sum shown in the accounts on 31 March 1966. On 22 March 1968 the brothers entered into an agreement between themselves which was to remain in force until the loan by the finance company had been repaid. By cll 4 and 5 it was agreed that in the event of any director voluntarily resigning he would immediately forfeit all money due to him from the company by way of his loan account and that if this event occurred the remaining directors might use the money in furtherance of the intention to repay the loan from the finance company but not in such a way as to benefit themselves personally. In June 1968 the plaintiff voluntarily resigned as a director and claimed payment from the defendant company of the sum in his loan account at the date of his resignation. The company denied that the plaintiff was entitled to the relief claimed and joined the co-director brothers as defendants. They adopted the company's defence and further counterclaimed for a declaration that the sum due to the plaintiff on the loan account had been forfeited. The issues arose whether the agreement between the brothers was intended to create legal relations and whether the defendant company could rely on a term in the agreement when it was not a party to it even though the agreement was for the company's benefit.

Held - (i) The agreement between the plaintiff and the second and third defendants was intended to affect the legal rights of all concerned and was therefore legally binding and enforceable (see p 85 h and p 86 a c and d, post).

(ii) The second and third defendants, having proved the contract between the plaintiff and themselves and having proved a breach of it by the plaintiff, or an undoubted intention on his part to repudiate it, were entitled to a declaration that the provisions of the agreement were binding on the plaintiff (see p 87 f and j, post).

(iii) The company, on the other hand, was not entitled to rely directly on the terms of the agreement since it was not a party to it (see p 87 g and p 89 g, post); nevertheless, the second and third defendants having made out an unambiguous

[1972] 1 All ER 79 at 80

case and succeeded on their counterclaim, and all parties, including the promisees under the agreement and the party to be benefited, being before the court, it was a proper case for a stay of all further proceedings under s 41^a of the Supreme Court of Judicature (Consolidation) Act 1925 in the plaintiff's action against the company; furthermore, since the reality of the matter was that the plaintiff's claim had failed, the right course was to dismiss the claim rather than merely to grant an order staying further proceedings (see p 89 a and j to p 90 a, post).

^a     Section 41, so far as material, provides: 'No cause or proceedings at any time pending in the High Court or the Court of Appeal shall be restrained by prohibition or injunction, but every matter of equity on which an injunction against the prosecution of any such cause or proceedings might formerly have been obtained, whether unconditionally or on any terms or conditions, may be relied on by way of defence thereto: Provided that--(a) Nothing in this Act shall disable either of the said courts, if it thinks it fit so to do, from directing a stay of proceedings in any cause or matter pending before it ... '

Beswick v Beswick [1967] 2 All ER 1197 considered.

(iv) Accordingly the plaintiff's claim would be dismissed and judgment given for the second and third defendants on the counterclaim with a declaration that, in the events which had happened, the plaintiff was not entitled to call on the defendant company to repay to the plaintiff the whole or any part of the sum due from the company to the plaintiff on his loan account on the date of his resignation (see p 90 b, post).

Notes

For the rights of strangers to a contract, see 8 Halsbury's Laws (3rd Edn) 66-68, paras 110-117, and for cases on the subject, see 12 Digest (Repl) 45, 227-241.

For the definition of a contract, see 8 Halsbury's Laws (3rd Edn) 54-59, paras 90-96, and for cases on the subject, see 12 Digest (Repl) 21-23, 1-14.

For the Supreme Court of Judicature (Consolidation) Act 1925, s 41, see 25 Halsbury's Statutes (3rd Edn) 713.

Cases referred to in judgment

Balfour v Balfour [1919] 2 KB 571, [1918-19] All ER Rep 860, 88 LJKB 1054, 121 LT 346, 12 Digest (Repl) 21, 3.

Beswick v Beswick [1967] 2 All ER 1197, [1968] AC 58, [1967] 3 WLR 932, Digest (Cont Vol C) 161, 245a.

Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847, [1914-15] All ER Rep 333, 84 LJKB 1680, 113 LT 386, 12 Digest (Repl) 234, 1754.

Gore v Van der Lann (Liverpool Corpn intervening) [1967] 1 All ER 360, [1967] 2 QB 31, [1967] 2 WLR 358, Digest (Cont Vol C) 947, 498b.

Hirachand Punamchand v Temple [1911] 2 KB 330, 80 LJKB 1155, 105 LT 277, 12 Digest (Repl) 519, 3897.

Porter (William) & Co Ltd, Re [1937] 2 All ER 361, 9 Digest (Repl) 485, 3180.

Scruttons Ltd v Midland Silicones Ltd [1960] 2 All ER 737, [1961] 1 QB 106, [1960] 3 WLR 372; affd HL [1962] 1 All ER 1, [1962] AC 446, [1962] 2 WLR 186, Digest (Cont Vol A) 271, 261a.

Slater v Jones, Capes v Ball (1873) LR 8 Exch 186, 42 LJEx 122, 29 LT 56, 5 Digest (Repl) 1255, 10077.

Tweddle v Atkinson (1861) 1 B & S 393, [1861-73] All ER Rep 369, 30 LJQB 265, 4 LT 468, 25 JP 517, 121 ER 762, 12 Digest (Repl) 45, 227.

West Yorkshire Darracq Agency Ltd v Coleridge [1911] 2 KB 326, 80 LJKB 1122, 105 LT 215, 9 Digest (Repl) 485, 3176.

Action

By a writ issued on 13 August 1969 the plaintiff, Brian Grenville Snelling, brought an action against John G Snelling Ltd ('the defendant company') claiming £15,268

[1972] 1 All ER 79 at 81

as money payable by the defendant company to the plaintiff being money lent by the plaintiff to the defendant company between 1 April 1962 and 31 March 1968.

By their defence the defendant company admitted that they were, on 21 March 1968, indebted to the plaintiff on loan account in the sum of £15,219 8s 1d but, by paras 2 to 7 of their defence, alleged: 2. At all material times up to 26 June 1968 the plaintiff was a director of the defendant company. The other directors of the defendant company were the plaintiff's brothers, John Peter Snelling and Barrie Walter Snelling ('the brothers') and the plaintiff's father, John Grenville Snelling. 3. By a mortgage dated 22 March 1968 and made between the defendant company of the first part, certain other companies of the second, third and fourth parts, the plaintiff and the brothers of the fifth part and Credit for Industry Limited ('the lender') of the sixth part, in consideration of the loan by the lender to the defendant company of the sum of £40,000 (repayable over ten years as therein provided) the defendant company and the other companies charged the properties therein mentioned with the repayment of the loan. By cl 10 of the mortgage the plaintiff and the brothers covenanted with the lender (inter alia) that so long as any money remained owing to the lender on the security of the mortgage they would not nor would any of them reduce the amounts of their loans to the defendant company beyond the balances of such loans as shown by the accounts of the defendant company as on 31 March 1966 without the previous written consent of the lender. 4. The amount of the plaintiff's loan account shown by the accounts of the defendant company as at 31 March 1966 was £6,443 16s 5d. Moneys remained owing to the lender on the security of the mortgage. The lender had not given its written consent to the plaintiff to call in the loan account. 5. By an agreement in writing dated 22 March 1968 and signed by the plaintiff and the brothers it was agreed (inter alia) (a) in the event of any of the parties to that agreement voluntarily resigning as a director of the defendant company such party would immediately forfeit all moneys lodged with the defendant company by way of loan account; (b) the resigning director's loan account was to remain with the defendant company and was to be used by the remaining directors as they should think fit in furtherance of the parties' declared intention to repay the mortgage loan, but not in such manner as to benefit themselves personally. 6. On or about 26 June 1968 the plaintiff voluntarily resigned as a director of the defendant company. 7. At a meeting of the board of directors of the defendant company held on 22 May 1969 the following resolution was passed:

'Upon consideration of the difficulties occasioned to the Company by the resignation of Brian Grenville Snelling RESOLVED (1) that the loan Account of Brian Grenville Snelling be cancelled (2) that the sum of £15,219. 8. 1d thus released be carried to a separate account by way of provision for repaying the C.F.I. Loan, the same to be written off from time to time or otherwise against the first £15,219. 8. 1d repaid hereafter to C.F.I. by the Company.'

This resolution was duly acted on by the defendant company.

On 6 January 1970 the brothers, John Peter Snelling and Barrie Walter Snelling, were joined as second and third defendants to the action. They adopted the defence of the defendant company and, by their counterclaim, repeated the allegations contained in paras 2 to 7 of the defence, and claimed (1) a declaration that the sum of £15,219 8s 1d (formerly due from the defendant company to the plaintiff on loan account) had been forfeited and was applicable in accordance with the resolution of the board of directors of the defendant company passed on 22 May 1969; alternatively, (2) a declaration that the plaintiff was not entitled to reduce the sum owing to him by the defendant company on loan account to less than £5,443 16s 5d except as provided in cl 10 of the mortgage dated 22 March 1968.

By his reply and defence to counterclaim the plaintiff admitted paras 2 to 4 and 6 of the defence and further admitted that a document described as an agreement

[1972] 1 All ER 79 at 82

dated 22 March 1968 had been signed by the plaintiff and the second and third defendants and that it contained the provisions set out in para 5 of the defence. The plaintiff denied, however, that this document was intended to give rise to legal relations and contended that in any event the agreement was not supported by consideration moving from any party to it.

R J S Harvey QC and A A R Thompson for the plaintiff.

J W Mills QC and R R F Scott for the defendants.

Cur adv vult

27 May 1971. The following judgment was delivered.



ORMROD J.

This is a tragic and alarming case--tragic because it has divided the plaintiff from the second and third defendants who are his brothers and formerly were his co-directors in a family company which is the first defendant; alarming, because it raises a number of difficult and interesting points of law and, for a family of this kind, the costs involved in resolving such points are likely to be ruinous.

The contention which has been put forward on behalf of the plaintiff, and on which he must succeed if he is to win this action, amounts to the proposition that, having made an agreement with his two brothers in an effort to put the family company on a secure business footing, he is entitled to repudiate it with impunity and that the court is not only impotent to restrain him, but is required to use its authority and its powers to assist him to carry his repudiation into effect by obtaining a judgment against the company in defiance of his agreement. The proposition is not attractive, but it is said to be the inevitable conclusion from the present state of the law. If that is correct the case for reform requires no further emphasis.

The relevant facts may be stated quite shortly and are not in dispute. The defendant company, John G Snelling Ltd, is a private company formed in 1945 to take over the building business founded by Mr John Snelling senior. In due course Mr Snelling's three sons, John Peter, Barrie Walter and Brian Grenville, joined him and became directors and shareholders of the company. Peter and Barrie are the second and third defendants to this action; Brian is the plaintiff. During the 1960's the business expanded and three or four other companies were acquired. In 1966 serious disputes began to arise between the brothers over the conduct of the business, the details of which are not relevant to this case. The business or businesses were also in need of additional finance and, early in 1967, negotiations were started with a finance house called Credit for Industry Ltd. Up to this time finance had been found from within the business itself. Mr Snelling senior over a long period had adopted the policy of ploughing back into the business part of its earnings. The three brothers had followed the same policy so that each of them was shown in the company's books as a creditor for a considerable sum. By March 1968 these loan accounts stood as follows: Peter Snelling (the second defendant), £16,000; Barrie Snelling (the third defendant), £14,000; Brian Snelling (the plaintiff), £15,000.

By February 1968 relations between the plaintiff and his two brothers had reached breaking point. In that month the plaintiff wrote a long letter addressed to 'The chairman and directors of John G Snelling Group of Companies'. (The chairman was the father of the three brothers.) In this letter he set out at length his opinion of his brothers in very uncomplimentary language and put forward suggestions for reorganising the business. The details are irrelevant except insofar as they demonstrate the extent of the estrangement between the brothers. There is, however, a passage in the letter which in the light of later events is of considerable importance in this case. That paragraph reads as follows:

'Failing written agreement, signed by the shareholders, at an Extraordinary General Meeting of the Companies, to the principle of either of the first two proposals by 29th February, 1968, I shall, on 31st March, resign my directorships

[1972] 1 All ER 79 at 83

of all the Companies within the group and withdraw my assets from the Companies by the best means available.'

This letter came at a critical moment for the defendant company because negotiations with Credit for Industry Ltd were on the point of being concluded and, on 22 March 1968, a mortgage was executed under which Credit for Industry Ltd agreed to advance £40,000 to the defendant company repayable over ten years by quarterly instalments of £1,000 plus interest, on the security of a mortgage on the property owned by the defendant company and its associated companies. All three brothers were parties to this mortgage and by cl 10 thereof, each of them covenanted with the mortgagees that so long as any part of this loan was unpaid they would not reduce the amounts of their respective loans to the company below the figure shown in the accounts of the defendant company on 31 March 1966. So far as the plaintiff is concerned the amount of his loan to the defendant company on 31 March 1966 stood at £6,443. It is relevant to observe that none of the three brothers was guarantor for the defendant company.

Between the date of the plaintiff's letter and the execution of the mortgage on 22 March 1968 great efforts were made to overcome the dissensions which had been dividing the brothers. By 7 March 1968, as is shown by the minutes of the defendant company for that date, agreement had been reached between them and a draft had been prepared for their consideration. On that day the draft was approved and the third defendant was deputed to prepare a formal document for signature. This was done and according to the minutes for 21 March 1968, it was signed by each of the three brothers. The agreement itself was dated 22 March 1968 (ie the same date as the mortgage). The vital terms of this agreement are cll 4 and 5 by which the three directors, Peter, Barrie and Brian, agreed that in the event of any director voluntarily resigning, or without reasonable cause neglecting the duties required of him, he would immediately forfeit all moneys due to him from any of the companies by way of loan account 'or similar'. Clause 5 provided that if this event occurred the companies and the remaining directors might use the moneys 'in furtherance of the intention to repay the loan from Credit for Industry but not in such a way as to benefit themselves personally'. There were other provisions covering such contingencies as resignation or neglect of duties for reasons beyond the director's control; cl 8 provided that the agreement would remain in force until the Credit for Industry loan had been repaid.

The efforts to compose the differences between the plaintiff and his two brothers proved in the end unavailing and the agreement between them short-lived, for on 27 June 1968 the plaintiff offered to resign his directorship. In a long letter in reply the third defendant offered once again to let bygones be bygones, but on 28 June 1968 the board formally accepted the plaintiff's resignation as a director. In August 1968 there was correspondence between the solicitors for the plaintiff and the defendant company about the plaintiff's loan account and other matters and ultimately, by a minute dated 22 May 1969, the defendant company resolved to cancel the plaintiff's loan account and at the same time to carry it to a separate account by way of provision for repaying Credit for Industry's loan.

On 13 August 1969 the plaintiff issued the writ in this action against the defendant company, claiming payment of the sum of £15,268 as money due from the defendant company to the plaintiff. This, of course, represents the amount which was shown in the defendant company's accounts as due to the plaintiff on loan account as at the date of his resignation.

The defence which was delivered on 20 October 1969 is obviously a document which has been carefully and deliberately drafted by the pleader. It admits that on 21 March 1968 (ie the day on which the agreement between the brothers was signed by them) there was due to the plaintiff by the defendant company the sum of £15,219 8s 1d. (Nothing turns on the difference in the figures.) Paragraph 2

[1972] 1 All ER 79 at 84

pleads the fact that up to 26 June 1968 the plaintiff and his brothers and his father were directors of the defendant company. Paragraph 3 recites the mortgage to Credit for Industry Ltd, and in particular cl 10, to which I have already referred, under which the plaintiff and his brothers agreed not to reduce the amount of their loans below the figures at which they stood in March 1966. Paragraph 4 alleges that the lenders had not consented to the plaintiff calling in the loan. Paragraph 5 recites the relevant parts of the agreement between the brothers of 22 March 1968. Paragraphs 6 and 7 recite the plaintiff's resignation and the resolution of the defendant company dated 22 May 1969 to cancel the plaintiff's loan account and to open the separate account which I have mentioned. The defence concludes with a denial that the plaintiff is entitled to the relief claimed or any other relief.

Later Peter and Barrie Snelling applied to be joined as defendants to the action and on 6 January 1970 it was ordered that they be joined as defendants. On 19 March 1970 they delivered a defence and counterclaim adopting the defendant company's defence and counterclaiming for a declaration that the sum due to the plaintiff on the loan account had been forfeited and is now applicable in accordance with the resolution of 22 May 1969. The plaintiff delivered a reply and defence to counterclaim, the substance of which is that the document signed by all the brothers on 22 March 1968 was not intended to give rise to legal relations and was not supported by any consideration.

It should be stated immediately that no attempt has been or could be made on behalf of the defendants to rely on cl 10 of the mortgage as a defence. It is pleaded simply as a relevant fact leading up to the agreement between the three brothers. In fact it appears that Credit for Industry was prepared to release the plaintiff from his obligation provided that the other parties agreed. This clause is, of course, a covenant with Credit for Industry Ltd, and not a covenant inter se between the plaintiff and the defendants or any of them. Similarly, it has not been argued on behalf of the plaintiff that there was no consideration to support the agreement between the brothers. Counsel for the plaintiff did, however, argue in the alternative that this agreement was too vague or uncertain to be enforced.

The resulting situation is at once simple and complex. To the layman the position is that the plaintiff having agreed to forfeit his loan account, ie to forgo the debt due to him by the defendant company, if he resigned his directorship voluntarily, has resigned voluntarily and is now suing the defendant company to obtain payment of the debt which he had agreed to forgo. To the lawyer, however, the difficulties are formidable because the case raises two points of principle, first whether the agreement of 22 March 1968 between the three directors and brothers was intended to create legal relations and, secondly, if it is an agreement which is capable of enforcement at law whether the defendant company, for whose benefit it was made, can rely on it. I do not know whether this is the first case in which in similar circumstances this practice has been adopted of adding as defendants the actual parties to such a contract, but I have not been referred to any similar case other than Beswick v Beswick, to which I will return later. I confess that I would have welcomed guidance over the procedural problems which may flow from my decision. It will be convenient to deal first with counsel for the plaintiff's submission that the agreement between the second and third defendants and the plaintiff contained in the document dated 22 March 1968 was not intended to give rise to legal relations between the three of them, and his alternative submission that the terms of the agreement are too vague to be enforceable at law.

On the first of these submissions I heard evidence from the plaintiff and the third defendant, and am satisfied that this agreement was intended by all of them to be binding on them, both in honour and in law. I do not think that it occurred to any of them that there was any difference between these two concepts. The agreement

[1972] 1 All ER 79 at 85

(and I refer to it as an agreement because it is expressed to be an agreement) was drafted by the third defendant who is, of course, a businessman and a layman, without legal assistance. He explained that they were all most anxious that no hint of the disagreements which were tearing the business apart should leak out to employees or to other persons and that was the reason why the lawyers were not called in. It is said, first of all, that this was a family matter, an attempt to compose the differences between members of the family, and that such arrangements were not intended to have legal effect. If it is to be suggested that this case is an extension of the principle in Balfour v Balfour, the answer is that the circumstances of that case were wholly different. In this case the family relationship had already been destroyed by dissensions; the plaintiff on the one hand, and the second and third defendants on the other, were at arm's length as is shown by the plaintiff's letter of February 1968. Nothing but the biological tie remained between them.

Then it is said that this arrangement was essentially a statement of mutual intentions for the future and no more, or, in other words, that it was in substance a letter of intent. Considerable reliance is placed on the contents of the document itself in support of this argument. Undoubtedly, the first three clauses do not amount to anything which could be regarded as an operative agreement and do contain expressions of intention for future co-operation. Clause 6 is a mere statement of fact, and cl 10 contains this phrase 'but by signing this agreement we are declaring our joint intentions' and so on, and goes on to refer to 'the court'. It must, however, be remembered that this document was drafted by a layman and that recitals are not uncommon in documents prepared by lawyers.

To deal properly with this submission, however, it is necessary to consider the background against which the document came to be prepared. I have already described the position in some detail. It is only necessary to add that all the directors of the defendant company were greatly concerned about its financial stability and were well aware of the effect of a withdrawal of the assets of any one of them from the business. They had made mutual wills to provide against the death of one or other of them, the defendant company had taken out life policies on their lives to cover, to some extent, the contingencies of the defendant company having to meet a call for a loan account to be paid off. They had already agreed to cl 10 of the mortgage but there remained one threatening possibility--the resignation of a director and a call for payment of the balance of his loan account so long as the mortgage debt to Credit for Industry Ltd remained outstanding. How real and immediate this threat was can be seen from the plaintiff's letter of February which I have already read. The third defendant said in evidence that it was a repetition of this situation which they wished to guard against and that it was against this contingency that the agreement was made. Moreover, the plaintiff's was not the only threatened resignation which had been received during those troubled days.

All these facts point, in my judgment, very strongly to the view that this agreement of 22 March was intended to be as full a protection as they could devise. While they did not consider in terms whether they intended to be legally bound, it is difficult to suppose that they would have gone to such trouble to record so obvious a debt of honour or to phrase the agreement in terms of 'forfeit' unless they intended legal consequences to flow from the agreement. The third defendant explained cl 10 in terms which I accept without hesitation. He said quite simply that he did not know what his draft might achieve or what effect it might have in law, so he included this clause as an indication of what they had tried to do. The reference by an unsophisticated layman who clearly had nothing but the interests of the business at heart to 'the court' suggests to me that he did envisage the possibility of legal proceedings arising out of this agreement. There are other indications in the document which point the same way. The phrase in cl 4 'we hereby agree' is often used as a way of

[1972] 1 All ER 79 at 86

emphasising the formal significance which it is intended should be attached to the words which follow it. The care which has been taken to provide for various contingencies and the provision in cl 5 limiting the way in which the loan account is to be dealt with after forfeiture, all presuppose that the agreement will affect the legal rights of all concerned, including the company.

The alternative contention is that the terms of this agreement are too vague or uncertain to be enforced. So far as the terms relating to forfeiting the loan account are concerned it is apparent on the face of the document that great care has been taken to express the intention of the parties as clearly and as fully as possible. Clauses 4, 7 and 8 are quite clear even though some ambiguity might be read into cl 8. No real difficulty, however, arises in interpreting it. Clause 5 may be more difficult to interpret but there again the intention is clear; the difficulty lies in the mode of its implementation rather than in ascertaining its meaning. In dealing with an agreement such as this, prepared by laymen themselves for themselves and each being on an equal footing with the others, the court, in my judgment, ought not to seek for ways of avoiding it but rather to do its utmost to give effect to it if it is possible to do so. For these reasons my conclusion is that the agreement between the plaintiff and the second and third defendants is legally binding and enforceable, unless there is some other reason why effect should not be given to it. None has been suggested or pleaded. No question arises, therefore, of penalty or of possible relief from the forfeiture.

I now turn to the position of the defendant company. Counsel for the plaintiff contends that it has no defence to this claim and relies on the well-known case, Scruttons Ltd v Midland Silicones Ltd, in which the House of Lords re-affirmed unequivocally the common law doctrine that in the absence of a trust or agency, a person cannot rely on a term in a contract to which he is not a party even if he is the person whom the contract is intended to benefit. Counsel contends, therefore, that the company cannot rely on the agreement between the brothers and claim that in the events which have happened the plaintiff's loan account has been forfeited, and consequently is no longer payable to him. There can be no doubt that this proposition is supported by the speeches in the Midland Silicones case. Counsel for the defendants, however, submits that some of the broad statements of principle in that case went too far and relies on the later case of Beswick v Beswick.

These cases are examples of two different situations. In the Midland Silicones case a firm of stevedores sought to rely on a clause limiting liability for damage to goods in transit which was contained in a contract between the carriers, the United States Lines, and the consignees, the Midland Silicones Ltd. It was held that since they were not parties to that contract they were not protected by the clause limiting liability, although damage by stevedores was expressly referred to in it. In Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd, Dunlops sought to sue Selfridges for breach of contract made by wholesalers with Selfridges which contained a clause fixing a minimum price below which Selfridges agreed not to sell tyres manufactured by Dunlops. The purpose of the clause was to enable Dunlops to operate a price maintenance scheme for their own benefit. It was held that since Dunlops were not a party to the contract with Selfridges they could not sue on the contract.

Beswick v Beswick was a wholly different case. The late Mr Beswick made a written agreement with his son under which he assigned his business of a coal merchant to the son in consideration of a promise by the son to pay him a weekly sum as a consultant to the business for the rest of his life and thereafter to pay his widow an annuity at the rate of £5 per week. After the father's death the son repudiated the agreement and refused to pay the widow's annuity. In an action by the widow

[1972] 1 All ER 79 at 87

as administratrix of her late husband's estate, it was held that as administratrix she was entitled to a decree of specific performance of the agreement to pay the annuity to herself as beneficiary. In Tweddle v Atkinson Mr Tweddle senior made an agreement with a Mr Guy that each would pay a certain sum of money to the plaintiff, John Tweddle, the son, who had married Mr Guy's daughter. Mr Guy failed to pay and after the death of both Mr Tweddle senior and Mr Guy, John Tweddle sued Mr Guy's executors on the agreement. He failed because he was not a party to the contract.

The critical difference between Beswick v Beswick and these other cases is that in all of them a person who was not a party to the contract from which the obligation in question arose, was attempting to enforce the contract. In Beswick, the widow in her capacity as the personal representative of her deceased husband's estate, was the promisee under the contract out of which the son's obligation to pay the annuity of £5 per week arose. She was therefore entitled to enforce the obligation. The fact that in her personal capacity she was the beneficiary of it was clearly irrelevant. The principle appears to be that if the right parties, that is, the promisee and the promisor, are before the court the action will be maintainable although the nature of the remedy which the court will grant will depend on the circumstances of each case. Thus in Tweddle v Atkinson the promisee was Mr Tweddle senior and, so he, or his personal representatives, could have enforced the agreement against Mr Guy's estate although Mr Tweddle junior was the beneficiary. On the principle of Beswick v Beswick the court would presumably have ordered the defendant to perform the obligation to pay the agreed sum to Mr Tweddle junior. In Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd the wholesalers could have sued Selfridges for breach of contract in selling the tyres below the minimum price but in that case it seems probable that the court would have decided that nominal damages would be an adequate remedy. In the Midland Silicones type of case, on the other hand, the promisee is not in a position to initiate any form of proceedings except possibly a motion under s 41 of the Supreme Court of Judicature (Consolidation) Act 1925, for a stay of proceedings pending between the promisor, on the one hand, and a person intended to be benefited or protected by the contract on the other.

The conclusion, therefore, is that the second and third defendants have proved the contract between the plaintiff and themselves and have proved a breach of it by the plaintiff or at any rate an undoubted intention on his part to repudiate it. They are consequently entitled to judgment on the counterclaim, but the nature of the relief to which they are entitled requires further consideration. The defendant company, on the other hand, is not entitled to rely directly on the terms of this contract, but whether the plaintiff is entitled to judgment against it on the claim also requires further consideration. To give judgment for the plaintiff against the defendant company for the amount claimed in the statement of claim and judgment for the second and third defendants on the counterclaim would be absurd, unless, which is clearly not the case here, the second and third defendants could be adequately compensated in damages. So far as they are concerned a judgment against the defendant company would frustrate the very purpose for which their agreement with the plaintiff was made. The next problem is to consider the relief to which they are entitled. They have claimed a declaration that the amount shown in the plaintiff's loan account has been forfeited to the defendant company and is now applicable in accordance with the resolution of the board of directors of the defendant company passed on 22 May 1969, but I feel some doubt whether this is the appropriate form of declaration. They are certainly entitled to a declaration that the provisions in the agreement of 22 March 1968 are binding on the plaintiff. Had these provisions

[1972] 1 All ER 79 at 88

been worded positively and not negatively, eg as a promise by the resigning director to release the company from its indebtedness to him, I think that, on the authority of Beswick v Beswick, this would have been an appropriate case on the facts in which to order specific performance of that promise in whatever was the appropriate form. Similarly, had the second and third defendants themselves taken proceedings, before the plaintiff issued his writ, to restrain the anticipated breach they would have been entitled to an injunction restraining him from demanding payment by the company of his loan account. Had he subsequently started an action against the company it would, presumably, have been stayed as an abuse of the process of the court. But what is the appropriate form of order when the second and third defendants have been joined in the plaintiff's action, and succeeded on the counterclaim? This is the procedural problem on which I would have been grateful for authoritative guidance. An injunction against the plaintiff restraining him from pursuing the action is excluded by the provisions of s 41 of the 1925 Act. But once it is established that the second and third defendants are entitled to enforce their contract with the plaintiff, the court is bound to take some action against the plaintiff. One solution would be to stay all further proceedings in the action between the plaintiff and the defendant company, either under the proviso to s 41 or under the court's inherent jurisdiction to protect its process from abuse.

Counsel for the plaintiff has called my attention to Gore v Van der Lann (Liverpool Corpn intervening) in the Court of Appeal and I must now deal with it. In that case the Liverpool corporation applied to the court under s 41 to stay an action which was proceeding between the plaintiff and a conductor of one of their buses for damages for negligent management of a bus. The plaintiff, as an old-age pensioner, had been given a permit by the corporation entitling her to travel at reduced rates or free on their buses. The permit contained a provision exempting the corporation and their servants, including the defendant conductor, from liability for negligence to persons travelling under it. The corporation sought to protect their conductor, who had been sued personally, by alleging that the plaintiff's claim was a fraud on the corporation, but they failed. The primary ground of the decision of the Court of Appeal was that the permit was a contract (not a licence as the corporation contended) and as such was caught by the Road Traffic Act 1960, s 151, which rendered any such exemption clause illegal. But, in the alternative, the Court of Appeal held that the exemption clause was not sufficiently precise in its terms to justify the granting of a stay of the plaintiff's action against the conductor. So in the present case counsel for the plaintiff says that there was no specific promise by the plaintiff not to sue the defendant company and consequently the court should refuse to stay the plaintiff's action. I do not think that the Court of Appeal can have intended to lay down a general proposition of law that the court will not stay proceedings in such circumstances unless the plaintiff has expressly undertaken not to sue. Such a ruling would appear to put an unjustified fetter on the discretionary powers of the court under s 41. I do not think that the Court of Appeal intended to go further than to say that the promise which is to be enforced by the granting of a stay must be clear and unambiguous. In this connection an observation by Kelly CB in Slater v Jones ((1873) LR 8 Exch 186 at 190) is of assistance. In that case, which concerned the effect of a resolution of creditors to accept a composition, he said:

'... I think that a person who is bound by such a resolution is also bound, by necessary implication, not to sue the debtor before the time for payment comes, and until default is made.'

So here, it is a necessary implication of cl 4 of the agreement of 22 March 1968 that the plaintiff will not sue the company.

[1972] 1 All ER 79 at 89

In my judgment, therefore, the second and third defendants have made out an unambiguous case and have shown that the interests of justice require that the plaintiff be not permitted to recover against the defendant company. It follows that this is a proper case in which to grant a stay of all further proceedings in the plaintiff's action against the company.

Counsel for the defendants, however, has submitted that he is entitled to go further and ask for the plaintiff's claim against the company to be dismissed. He relies on three cases: West Yorkshire Darracq Agency Ltd v Coleridge, Hirachand Punamchand v Temple and Re William Porter & Co Ltd. In the West Yorkshire case all the directors of a company in liquidation agreed to forgo their respective claims to outstanding directors' fees. The liquidator was a party to an oral agreement to this effect. Horridge J held that the company was entitled to rely on the agreement as a good defence to a subsequent claim by one of the directors for his fees. The basis of the judgment was that the company, through the liquidator, was a party to the agreement, although no consideration moved from it to the plaintiff. In Re William Porter & Co Ltd the opposite situation arose. Following a resolution passed by the directors of a company that no directors' fees be paid until a further resolution was passed, the trustee in bankruptcy of the governing director submitted a proof in the liquidation of the company for subsequent fees due to the director. The liquidator rejected the proof. Simonds J held that the company was not a party to any agreement with the directors and that the West Yorkshire case did not apply. He went on to hold, however, that the directors, by assenting to the postponement or abrogation of their rights, had induced the company to a course of conduct from which it could have abstained. He, therefore, upheld the rejection of the proof by the liquidator.

In the present case the defendant company was not specifically mentioned as a party to the agreement of 22 March 1968 which, in form at any rate, was an agreement between the three directors concerned. On the other hand, the minutes of the defendant company contain references to it and it was an important item on the agenda at two meetings of the board of directors. There being no liquidator there was no physical person other than the directors who could have been a party to it on behalf of the defendant company, and they themselves never applied their minds to the question whether the company was to be a party to it or not. They regarded the business, the company and its associated companies, and themselves as an amalgam for most purposes, and their intention was to act for the benefit of the amalgam. However, it is not possible to distinguish this case on its facts from Re William Porter & Co Ltd in this respect. I must, therefore, hold that the defendant company was not a party to the agreement. I have no evidence that the defendant company took any action in reliance on the agreement which it would not otherwise have done so that Simonds J's decision cannot be relied on to support the view that the company is entitled to have this action dismissed.

Hirachand Punamchand v Temple, which was a wholly different case on the facts, concerned a claim by the plaintiff against a debtor on a promissory note, whose father had paid to the plaintiff a lesser sum than that due in settlement of their claim. The Court of Appeal dismissed the claim on two grounds: first, that the promissory note was extinct and, therefore, could not be relied on, and, secondly, that it would be an abuse of the process of the court to allow the plaintiff to sue.

I am inclined to the view that in a case such as this where the promisees under the agreement and the party to be benefited by the agreement are all before the court and the promisees have succeeded against the plaintiff on their counterclaim, the right view is that the plaintiff's claim should be dismissed. I think that this accords

[1972] 1 All ER 79 at 90

with s 41 of the 1925 Act. If the action was left with no more than an order staying further proceedings on the claim, the plaintiff could start another action only to have it also stayed and so on ad infinitum. The reality of the matter is that the plaintiff's claim fails and the order of the court ought, if possible, clearly to reflect that fact.

Accordingly, I think the plaintiff's claim should be dismissed and that there should be judgment for the second and third defendants on the counterclaim, together with a declaration in appropriate terms. My present view, subject to hearing counsel further, is that it ought to be in the form of a declaration that in the events which have happened the plaintiff is not entitled to call on the defendant company to repay to the plaintiff the whole or any part of the sum of £15,219 8s 1d, formerly due from the defendant company to the plaintiff. I would prefer not to make any declaration about the resolution passed by the company on 22 May 1969, because the question whether the second limb of this resolution is in accordance with the agreement has not been gone into sufficiently thoroughly before me.

Judgment for the second and third defendants on their counterclaim and a declaration that the plaintiff was not entitled to call on the defendant company to repay to the plaintiff the whole or any part of the sum of £15,219 8s 1d formerly due from the defendant company to the plaintiff. The plaintiff's action against the defendant company dismissed.

Solicitors: Arnold, Cooper & Tompkins, Chichester (for the plaintiff); Thomas Eggar & Son, Chichester (for the defendants).

Janet Harding Barrister