harvela instruments ltd. v royal trust co of canada.pdf

7/27/2019 Harvela Instruments Ltd. v royal trust co of canada.pdf

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[1986] A.C. 207Harvela Investments Ltd. Appellants v. Royal Trust

House of Lords1985 June 4, 5, 6, 10; July 11

*207Harvela Investments Ltd. Appellants v. Royal Trust Company of Canada(C.I.) Ltd. and Others Respondents

House of LordsHL

Lord Fraser of Tullybelton, Lord Diplock, Lord Edmund-Davies, Lord Bridge ofHarwich and Lord Templeman

1985 June 4, 5, 6, 10; July 11Contract--Formation--Offer and acceptance--Sealed competitive tender--Highestsingle offer required--Bid comprising sum ascertainable by reference to rival bid--Whether referential bid impliedly excluded by terms of invitation--Delay in completiondue to dispute as to successful bidder--Whether vendors entitled to interest onpurchase money from completion date

The first defendants, a Jersey trust company, were one of the trustees of a settlementand the registered holders, on behalf of the trustees, of shares in a company in whichthe plaintiffs and the second defendant and his family also owned shares. Whicheverof the latter two groups acquired the trustees' shares would gain control of thecompany. Offers were made by both, and the first defendants then decided to invitethem to *208 submit revised offers on identical terms and conditions. By telex, theyinvited each to submit any revised offer that it might wish to make by sealed tenderor confidential telex to their solicitors by 3 p.m. on 16 September 1981. The solicitorsundertook not to disclose details of any such revised offer to any party before thattime. Tenders were to be a single offer for all shares held by the first defendants. Inthe event that closing should not take place within 30 days other than by reason ofany delay on the first defendants' part, interest was to be payable by the purchaser at4 per cent. above prime rate for Canadian dollar loans. The first defendants bound

themselves to accept the highest offer received by them that complied with the termsof the telex. Offers were received from both parties before 3 p.m. on 16 September1981. The plaintiffs' offer was C$2,175,000, the second defendant's "C$2,100,000, orC$101,000 in excess of any other offer... expressed as a fixed monetary amount,whichever is the higher." On 29 September 1981, the first defendants by theirsolicitors sent a telex to the plaintiffs and the second defendant saying that in thecircumstances they were bound to accept and did accept the second defendant's offer.In an action by the plaintiffs claiming the shares, Peter Gibson J. gave judgment intheir favour and declared that they were not liable to pay interest on the purchaseprice. He directed that the first defendants should retain and receive all dividends paidand to be paid on the shares from 16 October 1981 to completion. The Court ofAppeal allowed an appeal by the second defendant and dismissed a cross-appeal bythe first defendants.On appeal by the plaintiffs by leave of the House of Lords: -

Held, allowing the appeal,(1) that whether the first defendants had invited the plaintiffs and the seconddefendant to participate in a fixed bidding sale, only inviting fixed bids, or in anauction sale, enabling each bidder's bid to be adjusted by reference to the other bid,depended on the first defendants' presumed intention, which was to be deduced fromthe terms of the invitation read as a whole; that their undertaking to accept thehighest offer, showing that they were anxious to ensure a sale, their extension of thesame invitation to both the plaintiffs and the second defendant, showing that theywished each to have the same opportunity of buying the shares, and their insistencethat the offers were to remain confidential until the time limit for the submission ofoffers had elapsed, showing that they wished to provoke offers of the best price that


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each party was prepared to pay, were only consistent with a presumed intention tocreate a fixed bidding sale; that the use in the invitation of the word "offer" did notdisplace that presumed intention; and that, accordingly, the invitation on its trueconstruction had created a fixed bidding sale and the second defendant had not beenentitled to submit, and the first defendants had not been entitled to accept, areferential bid (post, pp. 223F-G, 224A, 225B - 226A, 228C-F, 230E - 231B, 233D-G).South Hetton Coal Co. v. Haswell, Shotton and Easington Coal and Coke Co. Ltd.

[1898] 1 Ch. 465, C.A. approved.S.S.I. Investors Ltd. v. Korea Tungsten Mining Co. Ltd. (1982) 449 N.Y.S. 2d 173applied.(2) That the telex message of 29 September 1981 had been sent by the firstdefendants with the intention of fulfilling what *209 they thought was their existingobligation due to their mistaken belief that they were bound to accept the seconddefendant's referential bid, not of creating any new obligation, and, accordingly, nosecond contract independent of the invitation had come into existence as a result ofthat message (post, pp. 223F-G, 224A, 226C-G, 228C-F, 235D-G).Beesly v. Hallwood Estates Ltd. [1960] 1 W.L.R. 549 applied.(3) That, although the first defendants' conduct in declining to complete with theplaintiffs had not been blameworthy, the failure to complete had been due to delay ontheir part within the meaning of the invitation, and, accordingly, they were notentitled to interest at the contractual penal rate imposed by the invitation; that,

however, the plaintiffs should not in all the circumstances have the benefit of theinterest attributable to the purchase money as well as the profits attributable to theshares since 15 October 1981, and, accordingly, as a condition of being grantedspecific performance they should be required to pay interest to the first defendants onthe purchase price of 2,175,000 from that date until actual payment at the short-term interest rate (post, pp. 223F-G, 224A, 227D - 228B, C-F, 236B-C, 237D- E).Decision of the Court of Appeal [1985] Ch. 103; [1984] 3 W.L.R. 1280; [1985] 1 AllE.R. 261 reversed.

The following cases are referred to in their Lordships' opinions:Beesly v. Hallwood Estates Ltd. [1960] 1 W.L.R. 549; [1960] 2 All E.R. 314S.S.I. Investors Ltd. v. Korea Tungsten Mining Co. Ltd. (1981) 438 N.Y.S. 2d 96;(1982) 449 N.Y.S. 2d 173South Hetton Coal Co. v. Haswell, Shotton and Easington Coal and Coke Co. Ltd.

(1898) 14 T.L.R. 176; [1898] 1 Ch. 465, C.A..The following additional cases were cited in argument:Allied London Investments Ltd. v. Hambro Life Assurance Plc. (1985) 274 E.G. 148,C.A..Bartlett v. Barclays Bank Trust Co. Ltd. (No. 2) [1980] Ch. 515; [1980] 2 W.L.R. 430;[1980] 1 All E.R. 139Birch v. Joy (1852) 3 H.L.Cas. 565, H.L.(E.).Booker v. Palmer [1942] 2 All E.R. 674, C.A..Burton v. Todd (1818) 1 Swans. 255Caledonian Railway Co. v. North British Railway Co. (1881) 6 App.Cas. 114, H.L.(Sc.).Hewitt's Contract, In re [1963] 1 W.L.R. 1298; [1963] 3 All E.R. 419Hillas & Co. Ltd. v. Arcos Ltd. (1932) 147 L.T. 503, H.L.(E.).Liverpool City Council v. Irwin [1977] A.C. 239; [1976] 2 W.L.R. 562; [1976] 2 AllE.R. 39, H.L.(E.).Luxor (Eastbourne) Ltd. v. Cooper [1941] A.C. 108; [1941] 1 All E.R. 33, H.L. (E.)Moorcock, The (1889) 14 P.D. 64, C.A..Reigate v. Union Manufacturing Co. (Ramsbottom) Ltd. [1918] 1 K.B. 592, C.A..Shirlaw v. Southern Foundries (1926) Ltd. [1939] 2 K.B. 206; [1939] 2 All E.R. 113,C.A..Smith v. Cooke [1891] A.C. 297, H.L.(E.).Trollope & Colls Ltd. v. North West Metropolitan Regional Hospital Board [1973] 1W.L.R. 601; [1973] 2 All E.R. 260, H.L.(E.).

*210 APPEAL from the Court of Appeal.This was an appeal by leave of the House of Lords by the plaintiffs, Harvela


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Investments Ltd., from the judgment of the Court of Appeal (Waller, Oliver andPurchas L.JJ.) [1985] Ch. 103 on 18 July 1984 by which they allowed an appeal bythe second defendant, Sir Leonard Outerbridge, and dismissed a cross- appeal by thefirst defendants, the Royal Trust Company of Canada (C.I.) Ltd., and the thirddefendants in the second defendant's counterclaim, the Royal Trust Company ofCanada, from the judgment of Peter Gibson J. [1985] Ch. 103 on 29 November 1983in favour of the plaintiffs.

The Court of Appeal refused the plaintiffs leave to appeal, but on 18 December 1984the Appeal Committee of the House of Lords (Lord Fraser of Tullybelton, Lord Diplockand Lord Brightman) allowed a petition by the plaintiffs for leave to appeal.The facts are set out in the opinion of Lord Templeman.Michael Essayan Q.C. and Michael Driscollfor the plaintiffs. The principal issue in thisappeal raises a question of construction of the invitation telex. Did a referential bid ofthe kind submitted by the second defendant answer the description of what by theterms of the invitation telex the first defendants had bound themselves to accept?This is similar to the question that was posed and answered in the negative by theCourt of Appeal in South Hetton Coal Co. v. Haswell, Shotton and Easington Coal andCoke Co. Ltd. [1898] 1 Ch. 465. The invitation telex invited a bid in the form of asealedtender or confidentialtelex. The confidential nature of each bid was confirmedby the undertaking given by the first defendants' solicitors not to disclose the detailsof any bid to another bidder before the closing time for submitting bids. The Court of

Appeal, while accepting that the issue between the parties was one of the properconstruction of the invitation telex, did not address their minds to the questionformulated above. They did not consider, as they ought to have done, whether theemphasis in the invitation telex on the confidential nature of the bids to be submittedas a matter of construction and necessary implication excluded a referential bid frombeing a proper acceptance of the offer contained in the invitation telex inasmuch assuch a referential bid could only be quantified by referring to the amount of anotherperson's bid, which was ex hypothesi confidential. In particular, Waller L.J. does notappear to have considered the provisions of the invitation telex as to confidentiality tobe relevant to the principal issue: see [1985] Ch. 103, 133D-E. The decision of theCourt of Appeal gives no meaning or effect to such provisions, and defeats theessential purpose of sealed bidding. The essential purpose of sealed bidding is thatthe bids are secret bids that are intended by the vendor and expected by bidders tobe kept confidential as between rival bidders until such time as it is too late for a

bidder to alter his bid. Sealed bidding means and must be understood by all thosetaking part in it to mean that each bidder must bid without actually knowing what anyrival has bid. The reason for this, as every bidder must appreciate, is that the vendorwants to avoid the bidders bidding (as they would do in open bidding such as at anauction) by *211 reference to other bids received and seeking merely to top thosebids by the smallest increment possible. The vendor's object is to get the bidders tobid "blind" in the hope that then they will bid more than they would if they knew howfar other bidders had gone. Additionally, from each bidder's point of view his own bidis confidential and not to be disclosed to any other bidder, and he makes his bid in theexpectation, encouraged by the invitation to submit a sealed bid, that his bid will notbe disclosed to a rival. If, therefore, a rival has disclosed to him by the vendor theamount of another's bid and uses that confidential information to pitch his own bidenough to outbid the other, this is totally inconsistent with the basis on which eachbidder has been invited to bid, and the rival's bid is not a good bid; likewise if therival adopts a formula that necessarily means that he is making use of what should beconfidential information (viz. the bid of another) in composing his own bid. In such acase, the amount of the other's bid is being constructively divulged to him.By the invitation telex, the first defendants bound themselves to accept the highestbid submitted by 3 p.m. London time on 16 September 1981, which meant that inorder to comply with the terms of the invitation telex any such bid had to be in a formthat could give rise to a complete contract by 3 p.m. Inasmuch as the referential limbof the second defendant's bid could not be quantified except by reference to theamount of the plaintiffs' bid, which was information that could not be disclosed to thesecond defendant before 3 p.m., it could not give rise to a complete contract by 3p.m. Accordingly, by 3 p.m. the only bid submitted by the second defendant which


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could give rise to a complete contract was the fixed limb of his bid which was lowerthan the plaintiffs' bid.The Court of Appeal in this case lost sight of the essential purpose of sealed bidding(seeperPeter Gibson J. [1985] Ch. 103, 115A-F and S.S.I. Investors Ltd., v. KoreaTungsten Mining Co. Ltd. (1982) 449 N.Y.S. 2d 173, 174-175) and never properlyanalysed the concept of it. They wrongly assumed that the procedure of sealedcompetitive bidding under which the vendor bound himself to accept the highest offer

was a rare occurrence, although no evidence has been adduced before Peter Gibson J.or the Court of Appeal that that was so. The South Hetton case, the S.S.I. Investorscase and the present case are all examples of this procedure being adopted. TheCourt of Appeal wrongly assumed that there would be no adverse effect if areferential bid were made in sealed bidding where the vendor had not undertaken toaccept the highest offer. In the case of such sealed bidding the bidder still knows thathis best chance of securing the property lies in submitting the highest bid, eventhough the vendor has not bound himself to accept it. The essential purpose ofinviting sealed bids therefore remains as set out above and is likewise liable to bedefeated by a referential bid. Waller L.J. erred in stating at p. 134C-D, that the Courtof Appeal had been given examples of referential bids that would not have anyunfortunate effect, inasmuch as all forms of referential bidding are potentiallydestructive of sensible and fair bidding in that they may well either frustrate thewhole bidding process or deflate the level of bids submitted, *212 as pointed out by

Peter Gibson J., at pp. 112E-113F. Oliver L.J. erred in considering, at pp. 137H-138A,that there could be any similarity in the context of sealed bidding between a bid thatwas referential in the sense that it was based on some objective standard (e.g. astock exchange quotation) and a bid that was referential in the sense that it wasbased on another bid; it is only the latter that defeats the purpose of sealed bidding.A stock exchange quotation represents information that is available to all bidders, incontrast to the amount of another person's bid, which is confidential. The Court ofAppeal erred in distinguishing the South Hetton case.The referential limb of the second defendant's bid was invalid; in consequence, hisonly bid was the fixed amount offered by him (which was less than the plaintiffs' bid);alternatively, he submitted no valid bid at all. Waller L.J. at pp. 135E-136B, appearsto have distinguished the South Hetton case on the basis that the second defendant'sbid contained an offer of a fixed amount, but such a distinction produces the followingdilemma. On the one hand, if regard can be had to the bid of a fixed amount and the

referential bid is valid, then the second defendant made two offers and not a singleoffer as required by the invitation telex. On the other hand, if, as Waller L.J. went onto accept, the only offer by the second defendant was the referential limb of his bid(being higher than the fixed amount), then the fixed amount was never offered at alland it is impossible to distinguish South Hetton on the basis that the seconddefendant offered a fixed amount. The decision of the Court of Appeal is at variancewith the decision in and policy of the law as enunciated in the Court of Appeal'sdecision in the South Hetton case, a decision that has stood for some 80 years. IfSouth Hetton is distinguishable (which it is not), it may mean that subtle and finedistinctions will turn on the wording of the sealed bids invitations issued and on thewording of the referential bids submitted in each case. It is of general importance thatin the commercial world these sorts of distinction should not arise, and the Houseshould take the opportunity of laying down a general principle applicable to all casesof sealed bids where there is no express exclusion of referential bids.Waller and Oliver L.JJ. were wrong in saying that the terms of the first defendants'offer were fully set out in the invitation telex. The terms set out in the invitation telexwere substantially the terms of the contractual obligations as between the vendor andthe highest bidder that would fall to be performed after acceptance of the highestvalid bid. The terms of the first defendants' obligation to accept the highest bid werenot fully set out and the invitation telex left it to be determined as a matter ofconstruction or implication what was and what was not a proper bid for that purpose.There can be no objection to implying a term into an offer, for the reason given byPeter Gibson J. in his judgment, at p. 114A. To have any sensible meaning, "sealedbidding," as a matter of construction or necessary implication for the reasons thatPeter Gibson J. gave, must exclude bids based on the bids of others.


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Anyone receiving this invitation telex would have known that he was expected tomake his bid without knowing what anyone else's bid was. There was no other pointto the provision for sealed bids. There is a *213 distinction between an invitation totreat and a case where the vendor binds himself to accept the highest offer in thatcompliance or non-compliance with an invitation to treat has no legal consequences.The second defendant's offer was capable of being accepted, but only outside theterms of the contract contained in the invitation telex. It was a counter-offer. The

reasoning in the South Hetton case is extremely applicable to the facts of the presentcase. "Net money" in the judgment of Sir Nathaniel Lindley M.R. is not a validdistinction for the purpose of saying that the passage in question was obiter.Alternative offers would not be a single offer. If one were to bid "$1m or [FN1].,whichever is the higher," that would not be a single offer. [Reference was made toS.S.I. Investors Ltd. v. Korea Tungsten Mining Co. Ltd. (1981) 438 N.Y.S. 2d 96.]

FN1 Fraction goes here

"Implied term" is another way of saying the same thing: i.e. either "highest offer"means no referential bids orone must insert the implied term "(excluding referentialbids)": see Liverpool City Council v. Irwin [1977] A.C. 239, 252H - 254H (LordWilberforce), 258E - 259B (Lord Cross of Chelsea), 266F-H (Lord Edmund-Davies),270B-C (Lord Fraser of Tullybelton). The question always is: "what have they bound

themselves to accept?" The plaintiffs satisfy the test of necessity in Liverpool CityCouncil v. Irwin because without the exclusion of referential bids the contractbecomes futile, inefficacious and absurd. Alternatively, it would be right to imply sucha term on Sir Natahaniel Lindley M.R.'s ground of "trickery." (South Hetton Coal Co. v.Haswell, Shotton and Easington Coal and Coke Co. Ltd. [1898] 1 Ch. 465, 468). Areferential bid is ex hypothesi taking advantage of confidential information containedin someone else's bid. It may be that one could frame referential bids so that they didnot cancel each other out, but that does not overcome the main objection that this iscompletely contrary to the purpose of sealed bidding. The existence here of a fixedbid is a distinction without a difference so far as distinguishing South Hetton isconcerned. The second defendant here was making a series of alternative, contingentoffers.Leolin Price Q.C. andJames Denniston for the second defendant. The seconddefendant's bid: (1) was an offer to purchase the shares; (2) was the highest offer

received by the first defendants; and (3) complied with all the provisions (whetherexpress or implied) of the invitation telex governing the form and content of an offer;it therefore constituted a valid and effective offer made in compliance with the termsof the invitation telex.As a matter of ordinary language and general contractual principles it is clear that thesecond defendant's bid constituted, at 3 p.m. on 16 September 1981, an effective andunambiguous offer to purchase the shares at a price of $2,276,000. It was an offerthat was capable of having effect: (a) whether or not any other bid was made; and(b) whether or not any other referential bid (in whatever form) was made. It was anoffer that: (a) the first defendants were not bound to accept if (inter alia) it did notcomply with such express or implied terms; but (b) nevertheless constituted aneffective contractual offer capable of acceptance. Suppose, for example, that thesecond defendant had bid a *214 fixed monetary sum of $2,276,000 but subject tothe condition that completion should take place within 50 days (rather than 30 daysas specified in condition 2 of the invitation telex) of 16 September 1981. Such a bidwould not have complied with the terms of the invitation telex but would neverthelesshave remained an effective offer.As to the plaintiffs' contention that the second defendant's bid was not a "single offer"as required by condition 1 of the invitation telex: (a) The phrase "single offer for allshares," when construed in the context of (i) the form of previous offers made by theparties and (ii) the communications between the parties leading up to the invitationtelex, must be interpreted as meaning that a tender should be an offer which (in thewords of Oliver L.J. [1985] Ch. 103, 137E) "embraced all the shares, of whateverclass, in one parcel and [could not] be accepted piecemeal as regards differentclasses." The second defendant's bid was such an offer. (b) In any event, the second


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defendant's bid was an offer of only one amount. Although the form of the bidrequired the recipient to consider different figures for the purpose of ascertainingwhich was the higher and thereby calculating the amount of the offer, the offer was asingle offer of one figure, viz. $2,276,000. The qualifying phrase "whichever is thehigher" made it clear that there was only one offer, not two alternative offers.Accordingly, the second defendant's bid was a single offer for all the shares thatcomplied with the express terms of condition 1 of the invitation telex.

As to the plaintiffs' contention that the second defendant's bid did not comply with animplied term of the invitation telex, namely that the amount offered by one bid mustnot be calculated by reference to the amount specified in another bid, the seconddefendant adopts the reasoning of the Court of Appeal for rejecting this contention. Inorder to establish the implied term contended for, the plaintiffs must show that: (a)the transaction was of such a familiar nature or the surrounding circumstances weresuch that the parties would, if asked, unhesitatingly have agreed that referential bidswere prohibited by the invitation; or (b) that in order to make the transaction enteredinto by the first defendants (by sending out the invitation telex) work at all it isnecessary to imply the suggested term into the invitation telex; or (c) that thetransaction entered into by the first defendants in sending out the invitation telex isone in which (irrespective of the actual or presumed intentions of the first defendants)the law implies such a term in the invitation telex on the basis ofLiverpool CityCouncil v. Irwin [1977] A.C. 239. The second defendant comments on each of the

three heads as follows: As to (a), there was no evidence before the court thatsuggests that there was any established usage or custom supporting the implicationof a term excluding referential bids. Nor can it be said that the parties would, if asked,unhesitatingly have agreed that the invitation prohibited referential bids. The seconddefendant plainly believed that such bids were permissible. The first defendantsthemselves had no objection to the referential nature of his bid; their only doubt(which was set at rest by their London solicitors and leading counsel) was whetherthat bid constituted a "single offer" for all the shares. The *215plaintiffs do not, sofar as the second defendant is aware, seek to imply the suggested term on thesegrounds.As to (b), implication of the suggested term cannot be justified on the grounds that itis necessary to give business efficacy to the transaction. The invitation telex and thetransaction entered into by the first defendants in sending that invitation workperfectly well without such an implication. The test is of necessity, not

reasonableness, and that test is not satisfied here. The arrangement by the firstdefendants for the sale of the shares was not frustrated or complicated by the seconddefendant making a bid in the form in which he did make it nor could any difficultyhave been caused even if one or more competing bidders had used the same form ofbid as he did. That the referential form of his bid did not in any way restrict orprejudice the business efficacy of the invitation telex is emphasised by the facts thatthe first defendants had no difficulty in construing his bid as an offer of $2,276,000;that less than two hours after the deadline for receipt of bids in response to theinvitation telex the second defendants were already able to inform the plaintiffs'Newfoundland lawyers that the plaintiffs' bid was unsuccessful; and that the effect ofthe second defendant's bid was to secure for the first defendants a purchase price of$101,000 higher than it would otherwise have received. Any reasonable biddercontemplating making a referential bid would, like the second defendant, have takencare to word his bid in such a manner that it was capable of taking effect as a validand certain offer in any circumstances. The fact that it is possible to imagine certainunlikely circumstances (e.g. if the bidders were unwise enough to make referentialbids in such a crude form that their bids could not take effect as certain offers) wherethe making of referential bids could lead to the invitation being abortive is not byitself sufficient to justify the implication of a term excluding any referential bid on thisground. Just as implication on the grounds of business efficacy was held by the Houseof Lords not to be permissible in Irwin, a fortiori the implication of a term excluding abid in the form of the second defendant's bid cannot be said to be necessaryin thepresent case.As to (c), there is no justification for implying a term on this basis. The test here isone ofnecessity, and it is not necessary to imply a term in the invitation telex


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excluding referential bids, in particular a bid in the form of the second defendant's.One should look at the invitation telex bearing in mind the preceding history. Therehad been some argument about confidentiality attaching to one offer by the plaintiffs.The invitation telex was "without prejudice to all and every offer currently before us."What was in the mind of the invitors at the time of the telex is relevant, and theywanted to keep the offers open. "Any offer made by you" might have been the offerstill on the table, but, be that as it may, "any offer" are words that carry the widest

significance, whereas the plaintiffs say that by some process of construction orimplication the word "offer" is rendered something less wide than the meaning that ithas in its ordinary connotation: that it is of restricted character. Whether one says "ofcourse that is its meaning" or whether one implies terms into a contractual documentdoes not *216 matter: the second defendant is seeking to establish what, objectively,looking at this telex, the reference to "offer" must be taken as being, i.e. what offer iscontemplated. One is trying to divine the intention. In looking to see whether the lawwill presume any intention of the invitor regarding the very ordinary word "offer," it isnot insignificant that the reaction of the second defendant and his advisers was that areferential bid would be an "offer." It is also a matter for comment that within a veryshort time the first defendants and their advisers were of the same view.[LORD BRIDGE OF HARWICH. That is no answer to the question what was the seconddefendant's bid if it had been opened before any other bid had been opened. Onecould not have said what it was.]

The relevant time was 3 p.m. on 16 September 1981. Before that, any party couldhave withdrawn. It is at that moment that the comparison has to be made. There wasno room for uncertainty at 3 p.m. on 16 September. At that time, the seconddefendant's bid was an offer of an ascertained figure, and it was higher than anyother amount. Otherwise, the trustees' whole object would have been defeated,because, instead of getting $2,276,000, they would have got only $2,175,000. Themanifest purpose of getting the highest available price would have been defeated. Itrequires some strong and compelling case to establish that the innocent word "offer,"unqualified by an express prohibition of a bid in this form, has that penalising effect.The House should reject the contention that this case has implications for referentialsealed bids generally and is not to be decided on its particular facts.A bid of "$5 or $1 more than any other bid" would be a good bid, but one must lookat the practicalities: it is most unlikely, against the background, that anyone wouldhave put in such a bid. "$101,000 over any bid of fixed amount " would be all right,

though someone reading South Hetton Coal Co. v. Haswell, Shotton and EasingtonCoal and Coke Co. Ltd. [1898] 1 Ch. 465 might think that it would not be.As to the argument below [1985] Ch. 103, 130C, it is dangerous to suppose thatthere is any essential purpose of sealed bidding: it depends on the circumstances ofthe case. Why this larger bid should be rejected, not by the vendors but by someprocess of judicial intervention, is hard to see.As to confidentiality, the second defendant did not have to submit his bid withoutknowing what the plaintiffs had bid. As to "essential purpose," he might have asked:"What is that? I have faithfully followed the prescribed procedure." As to making useof what he was not allowed to know, no one has said that he could not do so. At 3p.m. on 16 September 1981 comparison of the offers was essential, and at that timethe bids would have been known. As to the suggestion that that amounts to a"constructive disclosure," what reasonable man would have thought of such a thing?The referential part of the bid was not unfair to the plaintiffs at all: it was as open tothem as it was to the second defendant to make a bid in that form. If the seconddefendant had put in a similiar referential bid, but with different figures, there wouldhave been no more difficulty *217than if both had bid $2m. If it is said that thesecond defendant's system produces preposterous results, the answer is that it is nothis system; it is that of the first defendants. It is clearly not obvious that this sort ofbid is excluded when two parties both thought that it was valid. The law ought not tomake contracts, or reword contractual documents, for the parties. It should acceptthem in the form they are in. If that produces unsatisfactory results, that is the faultof the originator of the document, not of the law: see [1985] Ch. 103, 130D(arguendo) and The Moorcock (1889) 14 P.D. 64, 68,perBowen L.J.: "as musthavebeen intended ... musthave been in the contemplation of both parties." So, one asks:


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mustthe first defendants in formulating the invitation telex be presumed to haveintended that bids of this kind should not be considered? The compulsion simply is notthere. See also Reigate v. Union Manufacturing Co. (Ramsbottom) Ltd. [1918] 1 K.B.592, 605: a party here could not have said "oh, of course referential bids areforbidden."[LORD BRIDGE OF HARWICH. Could you devise a formula for sealed bids on termsthat referential bids will in all circumstances be accepted?]

It would not permit referential bids in every form, but one could permit them of acertain kind. One could put in a reserve price. One does not know whether theplaintiffs thought that referential bids were possible; there were queries from theparties regarding some of the terms. [Reference was made to Shirlaw v. SouthernFoundries (1926) Ltd. [1939] 2 K.B. 206, 227 ("so obvious that it goes withoutsaying"); Luxor (Eastbourne) Ltd. v. Cooper [1941] A.C. 108, 117 (Viscount SimonL.C.), 137 (Lord Wright); Trollope & Colls Ltd. v. North West Metropolitan RegionalHospital Board [1973] 1 W.L.R. 601 (the court does not make a contract for theparties).] The only answer suggested to the question why "offer" in this contract doesnot have its ordinary wide meaning is that the bids are going to be confidential until 3p.m.Regarding South Hetton Coal Co. v. Haswell, Shotton and Easington Coal and CokeCo. Ltd. (1898) 14 T.L.R. 176; [1898] 1 Ch. 465, the second defendant stresses theword "entirely" at p.469: i.e., if there were no other tender. If the defendant had said

"31,000 or..." Sir Nathaniel Lindley M.R. could not have used that dismissivesentence. His observations about trickery and making a bad precedent come after therationale of the decision, building on it, without examination of the possibilities towhich he referred. They were wrong. The observations about supposed subversionmade in S.S.I. Investors Ltd. v. Korea Tungsten Mining Co. Ltd., 449 N.Y.S. 2d 173,174-175 were wholly unnecessary to the decision of the case. The bid there waswholly uncertain.As to interpretation: (1) in construing all written instruments the grammatical andordinary sense of the words used is to be adhered to unless to do so would lead tosome absurdity: see Caledonian Railway Co. v. North British Railway Co. (1881) 6App.Cas. 114, 131 (Lord Blackburn). (2) A qualification of that proposition is that onedoes not depart from the grammatical interpretation because one does not like theresult or because one's initial reaction is that one does not like the consequences: seeSmith (J. T.) v. Cooke [1891] A.C. 297, 298-299 (Lord Halsbury L.C.).*218

There are various alternative ways of drafting an invitation excluding referentialbids. How does one choose between two alternatives if one is looking forinterpretation?If the second defendant had bid "$2 [FN2]. now and $ [FN3]. in six months " thatwould not have complied with the terms of the telex, but it would clearly have beenthe highest offer. It would be crazy if it could not be accepted. So with his actualoffer.



It was unnecessary, and unusual, for the first defendants to bind themselves toaccept the highest bid.The second defendant abandons his contentions in his printed case that the invitationtelex was a mere invitation to treat and that the plaintiffs did not give sufficientconsideration to make any contract between them and the first defendants binding onthe first defendants.The note at p.2 of theJournal of The Law Society of Scotland, January 1967, vol. 12,no. 1, is merely a recommendation against accepting referential offers; it is notsaying that they are not an "offer" within the law. The note is concerned withexcluding referential bidding in express terms; it is not saying that as a matter ofinterpretation they are not an "offer."Edward Nugee Q.C. and Oliver Weaver Q.C. for the first defendants and the RoyalTrust Company of Canada. In an open market permitting referential bids the result of


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any offer produces neither capricious nor uncertain results even where the vendorbinds himself to accept the highest offer. This case is to be distinguished on its ownfacts from obiter dicta in South Hetton Coal Co. v. Haswell, Shotton and EasingtonCoal and Coke Co. Ltd. [1898] 1 Ch. 465 and S.S.I. Investors Ltd. v. Korea TungstenMining Co. Ltd., 438 N.Y.S. 2d 96; 449 N.Y.S. 2d 173.A fixed bid is a simple bid of a fixed amount (e.g. 100). A referential bid is a bid thatis determined by reference to a competing bid (e.g. 10 more than any other bid). A

mixed bid contains a fixed bid (e.g. 50) and a referential bid element (e.g. 10 morethan any other bid) and may be limited in overall amount (e.g. 200). The referentialbid element can only operate when the amount of other bids has been determinedbecause either other bids are fixed at the outset or other bids have become fixedwhether notionally or by reference to any overall limit placed on them.In a tender where mixed bids are allowed, where the referential bid element operatesonly on the fixed element in other bids (e.g. 10 more than any other bid expressedas a fixed sum) a bidder can strengthen his position by a combination of a defensivelow fixed element (to reduce his opponent's base) (e.g. 10) and an aggressive highreferential bid element (to increase his own bid) (e.g. 50 more than any other fixedbid). Thus, there will be an incentive on any such bidder to keep his referential bidelement as high as possible. This will, however, in turn, expose him to a high fixedbid. Any bidder making a bid with a high referential bid element would in practicedefend his ultimate exposure by an overall upper limit. Where the referential bid

element operates on the combined fixed and referential elements in other bids (e.g.10 more than any other bid not exceeding 200 in all), each bid will defeat the otherup to their respective limits, when all save one become fixed. In *219 that event, thebidder imposing the highest limit wins with a bid of his referential bid element overthe next highest limit. While, however, one such bidder who imposes no limit on hisbid will succeed, a combination of such unlimited bids will be self-cancelling. Thus, nobidder would be advised to put in such a bid without a limit, because, if there isanother such bid, he will thereby ensure that he does not succeed. Thus, in practice,the market will be regulated by the limit that each bidder will place on his referentialor mixed bid. Where the referential bid element operates on other referential or mixedbids, the bidder with the highest limit on his referential or mixed bid succeeds at aprice in excess of the next highest limit. Where the referential bid element operateson only the fixed bid element in other bids (including fixed bids), the requirement fora successful bidder making a low fixed bid to make a high increment bid to defeat

another similarly-minded bidder will expose each of them to a realistic fixed bid to theconsequent benefit of the offeror. This possibility will, in practice, mean thatreferential and mixed bidders will adopt the former course. In these circumstances,the mischief suggested by the Court of Appeal in the South Hetton case will not, inpractice, arise, and the vendor will in fact obtain a price higher than anyone otherthan the successful bidder is prepared to pay. This is not so if the bids are limited tofixed bids, for in this case (contrary to what Peter Gibson J. said [1985] Ch. 103,115D) each bidder will bid the minimum amount that he thinks will secure thecontract.The special features of this case are: (i) the invitation telex was sent only to theplaintiffs and the second defendant. Contrast the facts in the S.S.I. case (see 438N.Y.S. 2d. 96, at pp.98 and 101), where the offer was by public advertisement inaccordance with an established and well-recognised practice of sealed competitivebidding which, at all events in New York, is adopted in relation to almost all contractsfor public improvements and many for private improvements (anglice"developments"). (ii) The plaintiffs and the second defendant had each made to thetrustees substantial previous offers for the shares which remained outstanding, andeach knew that the two offers were similar in amount. (iii) The second defendant's biddid not depend for its efficacy on the existence of another bid. (iv) The referential bidelement in the second defendant's bid was a substantial increase over the plaintiffs'bid. (v) The invitation telex did not seek to exclude referential bids. (vi) By theinvitation telex the first defendants had bound themselves to accept the highest offerreceived.There was no condition that Bischoff & Co. would not open any tender before 3 p.m.(as there was in the S.S.I. case). So they were in a position to quantify the second


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defendant's bid before 3 p.m. There was not really a breach of confidence here: it waslike bidding blind at an auction, leaving one's bid with the auctioneer. This is a verypeculiar case. What is clear is that, if the second defendant's claim is rejected, thefirst defendants will not get the best price that anyone was prepared to pay. There isno reason to suppose that the second defendant did not have it in mind that theplaintiffs might also put in a referential bid. So his fixed bid of $2,100,000 may havebeen genuine.

The plaintiffs were not required to reply on the principal issue.*220Nugee Q.C. on the second contract issue. The invitation telex was an offer andnot a mere invitation to treat by reason of the obligation to accept the highest bidcomplying with the specified terms. That offer was accepted when the highest bidcomplying with the terms of the invitation telex was received irrespective ofdifficulties in determining which of the plaintiffs' or the second defendant's bids socomplied. Acceptance of the offer produced a binding contract either for the sale ofthe shares or to enter into a contract for the sale of the shares. The distinction isimmaterial, as Lord Wright said in Hillas & Co. Ltd. v. Arcos Ltd. (1932) 147 L.T. 503,515. Thereafter, the first defendants had no intention of making any further contractwith the second defendant for the sale of the shares, and the further telex was onlyfor the purpose of giving effect to its belief of pre-existing rights: seeperBuckley J. inBeesly v. Hallwood Estates Ltd. [1960] 1 W.L.R. 549, 558. [Reference was made toBooker v. Palmer [1942] 2 All E.R. 674, 677C (Lord Greene M.R.)].

The first defendants will not seek to argue that in the event of the second defendantsucceeding on the second contract issue he is confined to nominal damages for breachof such contract.Price Q.C. on the second contract issue. Peter Gibson J. rightly held that, on thehypothesis that the first defendants had already entered into a contract on 16September 1981 to sell shares to the plaintiffs for $2,175,000, they had neverthelessentered into a second contract on 29 September 1981 to sell them to the seconddefendant for $2,276,000. The second defendant's bid constituted an effective offer topurchase the shares for $2,276,000, capable of acceptance by the first defendants.On 29 September 1981, the first defendants sent a telex to the second defendant'sLondon solicitors accepting that offer by the second defendant. The communication ofthat acceptance to the second defendant's agents constituted a binding contractbetween the first defendants and the second defendant whereby the first defendantsagreed to sell the shares to the second defendant for $2,276,000, completion to take

place within 30 days of 16 September 1981. In so far as the first defendants acceptedthe second defendant's offer in the mistaken belief that they were bound by the termsof the invitation telex to accept such offer, that mistake was a mistake of law anddoes not validate the contract. There was an intention here to create a legalrelationship. The first defendants took a deliberate step apparently actually bindingthemselves in a contractual relationship with the second defendant, which wascompleted on 29 September 1981 and not at any earlier time. [Reference was madeto Beesly v. Hallwood Estates [1960] 1 W.L.R. 549, 558 and Booker v. Palmer [1942]2 All E.R. 647, 677.]As to damages, the second defendant is not entitled to specific performance of thesecond contract, he is entitled to an order for an inquiry as to what damage he hassustained in consequence of the failure of the first defendants to transfer the sharesto him. There is ample material to support the inference that he would suffer somedamage.Nugee Q.C. on the interest point. As to contractual interest, "delay on our part"imports the concept of fault or responsibility (see the definition of "delay" in theShorter Oxford English Dictionary) and does *221 not extend to a circumstanceforced on the first defendants by matters outside their control. It means, as a matterof plain language, delay for which the first defendants are responsible. Given theinevitability of litigation to determine the principal issue, unless "delay on our part"does import the concept of fault or responsibility the first defendants could never havebeen entitled to interest under the contract, whether by electing or by refusing tocomplete with either or both parties. Further, it would be absurd if the question ofinterest depended on whether the first defendants or the purchaser had beenrestrained at the suit of the other bidder. The construction of "delay on our part"


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should be approached having regard to the normal rule that a purchaser pays interestfrom the date fixed for completion and, in the absence of express provision, canexcuse himself only by showing default on the part of the vendor: see In re Hewitt'sContract [1963] 1 W.L.R. 1298, 1301-1302. The rule is based on the fundamentalprinciple that as from that date the purchaser is considered the owner of the propertysold and the vendor the owner of the purchase money: Birch v. Joy (1852) 3 H.L.Cas.565, 590-591 (Lord St. Leonards L.C.); Burton v. Todd (1818) 1 Swans. 255, (Sir

Thomas Plumer M.R.). Had the first defendants sought to transfer the shares to theplaintiffs at any time prior to the order of Peter Gibson J. made on 29 November1983, the second defendant would have sought and obtained an injunction. That wasaccepted by Peter Gibson J. The delay in the completion of the contract was due to asupervening outside event, namely the intervention of the court in the Jerseyproceedings to determine the principal issue. To constitute delay "on our part," theplaintiffs must show that, but for something that the first defendants did, or failed todo, the transfer of the shares to the plaintiffs would have been completed on the datefixed for the completion of the contract. Further, since the order of Peter Gibson J.,which incorporated a stay of all proceedings to enforce the declarations and ordersmade in favour of the plaintiffs, and the subsequent order of the Court of Appeal, thefirst defendants have been powerless to transfer the shares to the plaintiffs. Theycould not have completed on 16 October whatever course they had taken. "Delay "may mean the action of delaying or the mere fact of being delayed. The addition of

"on our part" makes it clear that the word was being used in the first sense. It cannotbe said that the first defendants had contracted out of their right to interest. Therewas nothing that they could have done to secure the speedy completion of thecontract once the second defendant had made that bid. There would have been justas much delay. If the first defendants had taken out an interpleader summons itwould have been difficult to criticise them. There would then have been delay incompletion, and it would have been "on our part" in the sense that the firstdefendants would have taken out the summons. They cannot be said to have beenresponsible for the delay in any real sense. The word "frustrating" in the judgment ofPurchas L.J. [1985] Ch. 103, 150F is wrong: it is enough that there should be asupervening outside event. Oliver and Waller L.JJ. wrongly dissected "delay" and "onour part."As to equitable interest, this is claimed as an incident of specific performance. Thebasis of such an award is to compensate for *222 non- receipt of money that ought

to have been received (Bartlett v. Barclays Bank Trust Co. Ltd. (No. 2) [1980] Ch.515, 547B (Brightman L.J.)), coupled with the principle that, as from the date fixedfor completion, the vendor is considered in equity to be the owner of the purchasemoney. It is inequitable to allow a purchaser to retain the rents and profits earnedover a delayed completion and at the same time be relieved of paying interest. Todisplace this principle a strong case must be made out (see In re Hewitt's Contract[1963] 1 W.L.R. 1298, 1301-1302 (Wilberforce J.)), such as fault on the part of thepurchaser. Prima facie, interest is payable in the case of any specifically enforceablecontract. This contract does not displace that rule. It should be approached with thepresumption that interest is payable unless there is a clear indication that it is not.The plaintiffs have had the use of the purchase money since the date fixed forcompletion, or alternatively have been relieved of the burden of borrowing any part ofit. Since the date fixed for completion of the contract, the company has earnedsubstantial profits, which will enure largely for the benefit of the purchaser of theshares (who will thereby obtain effective control of the company). In a case such asthis, where the subject- matter of the sale includes a holding of shares on which nodividends are paid but which give control of a family company earning substantialprofits, it is neither realistic nor just to hold that the only compensation to which thevendor is entitled for non-receipt (through no fault of his own) of the purchase price isthe modest dividends paid on other shares that happen also to be included in the sale.The plaintiffs could have put the purchase price on deposit.If the House holds that the contract does not entitle the first defendants to interest,the right course in equity would be to require the plaintiffs to pay interest at theconventional rate, i.e. the short-term investment rate, which is the normal rate toaward in equity (see Bartlett v. Barclays Bank Trust Co. Ltd. (No. 2) [1980] Ch. 515,


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547B (Brightman L.J.) and much the same rate as the first defendants would haveobtained if they had put the purchase price on deposit; see also Allied LondonInvestments Ltd. v. Hambro Life Assurance Plc. (1985) 274 E.G. 148, 151 and Birchv. Joy (1852) 3 H.L. Cas. 565, 590- 591 (Lord St. Leonards L.C.).Essayan Q.C. on the interest point. If the plaintiffs are successful on the principalissue, they should not be required to pay interest to the first defendants on thepurchase price of the shares either under the terms of the contract or on equitable

principles, for the reasons given by Peter Gibson J., with which Oliver L.J. agreed andfrom which Waller and Purchas L.JJ. did not dissent. Why was the contract notcompleted on 15 October 1981? The answer can only be: because the first defendantsof their own volition decided not to sell to the plaintiffs but to sell to the seconddefendant instead; because they erroneously thought that they were bound to do so.That was "of their own volition" because there was nothing to stop them completingwith the plaintiffs.As to the liability to pay interest as a condition of specific performance, the ground ofthat is that the purchase money in equity *223 belongs to the vendor and theproperty to the purchaser. That is subject to the qualification expressly indorsed in Inre Hewitt's Contract [1963] 1 W.L.R. 1298, that it does not apply where there is delayon the part of the vendor and there is a gross disproportion between the interestpayable and the benefit derived. The plaintiffs have had no benefit from the propertyat all. It is now too late to give the plaintiffs any benefit retrospectively because

control has been exercised meantime by the second defendant.If a vendor fails to complete due to his fault, it may turn out that the purchaser isbetter off because he has had the money meanwhile. The figure given in the firstdefendants' written case of $1,917,116 for 1981 profits is misleading, because that iswhat the plaintiffs were paying for anyway. In applying the equitable rules, oneapplies them consistently with the terms of the contract. It is accepted that, as acondition of granting specific performance, the court can grant some kind of interest,but it ought to be influenced by the contractual provisions, and, if the party cannotget interest on a contractual basis, it should not get it on equitable grounds.The contractual rate of interest is a penal rate. There should be no question here ofcompound interest, whether at LIBOR or any other rate.The plaintiffs could not have got an undertaking in damages to cover them for whathappened up to 29 November 1983: they were the party seeking the injunction.Driscollfollowing. If it is accepted that under the terms of the contract the first

defendants are not entitled to interest, then to grant specific performance of thatcontract on terms that the plaintiffs pay interest would be to grant specificperformance not of that contract but of some other. In considering whether it wouldbe unconscionable for the plaintiffs not to have to pay interest the contract should betaken into account, not rewritten. This was not an unusual provision as to interest.Their Lordships took time for consideration.

July 11. LORD FRASER OF TULLYBELTONMy Lords, I have had the advantage of reading in draft the speeches of my noble andlearned friends, Lord Diplock and Lord Templeman, and I agree with them. For thereasons stated in them I would allow the appeal and make the declarations andorders proposed by Lord Templeman.

LORD DIPLOCK

My Lords, the unanimous conclusions of the Appellate Committee upon the threeissues raised in these proceedings are voiced in the speech of my noble and learnedfriend, Lord Templeman. In it he sets out the relevant facts which give rise to thethree questions of law about legal obligations resulting from the contractual relationsbetween the three parties to the appeal and cross-appeal to this House. These I willcall, for brevity, "the construction question " (which is the main *224 question in theappeal by Harvela), "the second contract question," and "the interest question."Since, like the remainder of your Lordships, I am in full agreement with LordTempleman's speech, the brief observations of my own which I have ventured toappend are written on the assumption that what he says has been already read and


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digested. What I myself am proposing to say should be treated as being in the natureof footnotes to it, which are designed to indicate the way in which those threequestions of law and the solutions to them reached by this House are compatible withcurrent juristic analyses of contractual obligations as they have been developed in thecourse of the last 25 years.The construction question turns upon the wording of the telex of 15 September 1981referred 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 inHarvey & Co. Ltd. of which the vendors were the registered owners in the capacity oftrustees. Its legal nature was that of a unilateral or "if" contract, or rather of twounilateral contracts in identical terms to one of which the vendors and Harvela werethe parties as promisor and promisee respectively, while to the other the vendorswere promisor and Sir Leonard was promisee. Such unilateral contracts were made atthe time when the invitation was received by the promisee to whom it was addressedby the vendors; under neither of them did the promisee, Harvela and Sir Leonardrespectively, assume any legal obligation to anyone to do or refrain from doinganything.The vendors, on the other hand, did assume a legal obligation to the promisee undereach contract. That obligation was conditional upon the happening, after the unilateralcontract had been made, of an event which was specified in the invitation; theobligation 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 theinvitation. The event upon the happening of which the vendor's obligation to sell theshares to the promisee arose was the doing by the promisee of an act which was ofsuch a nature that it might be done by either promisee or neither promisee but couldnot be done by both. The vendors thus did not by entering into the two unilateralcontracts run any risk of assuming legal obligations to enter into conflictingsynallagmatic contracts to sell the shares to each promisee.The two unilateral contracts were of short duration; for the condition subsequent towhich 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 telexcontaining an offer by the promisee to buy the shares for a single sum of money inCanadian dollars. If such an offer was received from each of the promisees undertheir respective contracts, the obligation of the promisor, the vendors, was to sell theshares 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 anend, because the event the happening of which was the condition subsequent towhich the vendors' *225obligation to sell the shares to that promisee was subjecthad not happened before the unilateral contract with that promisee expired.Since the invitation in addition to containing the terms of the unilateral contract alsoembodied the terms of the synallagmatic contract into which the vendors undertookto enter upon the happening of the specified event, the consequence of the happeningof that event would be to convert the invitation into a synallagmatic contract betweenthe vendors and whichever promisee had offered, by sealed tender or confidentialtelex, the higher sum. To this I shall advert briefly when I come to mention the freshcontract question and the interest question.The answer to the construction question itself, however, appears to me to present nodifficulties in so far as it leads to the conclusion that the condition subsequent towhich the vendors' obligations under the unilateral contracts were subject wasincapable of being fulfilled by either promisee except by a self-contained offer of apurchase price for the shares expressed as a fixed sum of money which did notnecessitate, for its quantification, reference to offers made by any other bidders. Iappreciate 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.In the case of a unilateral contract, until it is converted, if it ever is, into asynallagmatic contract between promisor and promisee, the only question ofconstruction is: what legal obligation would the words used by the promisorreasonably convey to the promisee that it was the intention of the promisor toassume towards him?The invitation invited each promisee to whom it was addressed to specify by a fixed


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hour on the following day the price at which he was willing to accept the promisor'soffer to sell the shares upon the terms set out in the invitation. Such price was to bespecified, not by an offer of which the other promisee could obtain knowledge, but bysealed tender or confidential telex the contents of which the promisor undertookshould not be disclosed to the other promisee until it was too late for him to make atimeous offer.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 disclosedto any competing promisee and imposing on the promisor a legal obligation totransfer the property to the promisee whose tender specifies the highest price is thateach promisee should make up his mind as to the maximum sum which he estimatesthe property is worth to him, not a sum of money the amount of which cannot bedetermined except by reference to amounts specified in sealed tenders received fromother promisees of which, under the terms of the unilateral contract, he is to bedenied all knowledge before the time for making his own tender has expired. Thatbusiness purpose would be defeated by a tender which took the form of an offer topurchase the property not for a specified fixed sum of money but for a sum greater bysome specified amount than the fixed sum specified in the sealed tender lodged bysome other promisee by the terms of a unilateral contract in identical terms. Whatother sensible reason could there be for making it *226 a term of each unilateralcontract that the promisee should be kept in ignorance of the amounts offered by any

other promisees?The business purpose of a unilateral contract of this type providing for sealed tendersand the resulting construction placed upon it of excluding referential bids of the kindmade by Sir Leonard was judicially recognised as long ago as 1898 in South HettonCoal Co. v. Haswell, Shotton and Easington Coal and Coke Co. [1898] 1 Ch. 465, citedby my noble and learned friend, Lord Templeman. Until the judgment of the Court ofAppeal in the instant case the ratio decidendi of that judgment of Sir Nathaniel LindleyM.R. has never been doubted or questioned. I agree with Lord Templeman that thegrounds on which the Court of Appeal sought to distinguish the instant case from theSouthHetton case are unsound. Your Lordships should take this opportunity ofconfirming the judgment in the South Hetton case and thereby put it beyond furtherquestion.My Lords, I turn next to the second contract question, the answer to which appears tome 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 tobuy the shares at a price of $101,000 more than whatever fixed price was bid byHarvela and an acceptance of that offer by the vendors' telex of 29 September 1981to Sir Leonard. To create such a fresh contract there must have been an intention onthe part of each party, manifested to the other, to assume fresh contractualobligations to the other party which he had not hitherto been under any legal liabilityto perform. It seems to me to be clear beyond argument that there was no suchintention by either party and none was manifested by either party to the other. SirLeonard's only intention in making his offer of 16 September 1981 was to comply withthe condition subsequent specified in the unilateral contract of 15 September and byso doing to convert it into the synallagmatic contract, the terms of which werecontained in the invitation, which he asserted gave rise to the contractual obligationon the part of the vendors to transfer the shares to him; while the vendors' onlyintention, as the wording of their telex of 29 September makes clear, was to performthe legal obligation to Sir Leonard by which they were already bound under thesynallagmatic contract into which the unilateral contract they had made with him had,as they believed, been converted. That each had misconstrued that unilateral contractcannot transform their common intention toperform an existing contract into anintention to make a fresh and different one.I come finally to the interest question. A telex was sent on 29 September 1981 by thevendors to Harvela notifying Harvela of the terms of the offers which had beenreceived from Harvela and Sir Leonard, and stating that the vendors were bound toand did thereby accept Sir Leonard's alternative offer expressed as $101,000 inexcess of Harvela's offer which, unknown to Sir Leonard, was for the sum of2,175,000. This constituted an anticipatory breach of a fundamental term of the


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synallagmatic contract by the vendors with Harvela to sell the shares to Harvela, intowhich the unilateral contract of 15 September 1981 had been converted at 3 p.m. on16 September 1981 by the offer *227by Harvela of $2,175,000 for the shares, whichwas higher than the only fixed sum that had been offered at that time and date by SirLeonard, viz. $2,100,000. Upon receipt of the telex Harvela had the choice of electingbetween either treating the vendors and Harvela itself as continuing to be under alegal obligation to perform that synallagmatic contract in accordance with its terms, or

of treating as terminated the primary obligations of both parties not yet performed,and in the case of those primary obligations of the vendors, but not those of Harvela,replaced by secondary obligations to pay compensation by way of damages to Harvelafor any loss sustained by it as a result of the vendors' failure to perform them.Harvela elected to hold the vendors to their primary obligations under thesynallagmatic contract; but this necessitated it seeking from the High Court its aid incompelling the vendors to do so. The form in which such aid was available was by theequitable remedy of specific performance - a remedy which, before the creation, bythe Supreme Court of Judicature Act 1875, of a unified Supreme Court and the fusionof common law and the rules of equity, could only be granted by a court of Chancery.It was not available in courts of common law, where the only remedy took the form ofcompelling the payment of monetary damages.Just as damages at common law for breach of contractual obligations are intended toput the party not in breach in the same position, so far as money can do so, as if the

contractual obligations had been performed by the other party, so too the equitableremedy of specific performance is intended to put both parties in the same position asif their respective contractual obligations had been timeously performed by both ofthem. This finds expression in the maxim "equity treats as done that which ought tohave been done." In the instant case if both the vendors and Harvela had performedtheir respective obligations under the synallagmatic contract the vendors would havetransferred the shares to Harvela not later than 15 October 1981, the closing date,and Harvela on the same day would have paid to the vendors the purchase price of$2,175,000 by banker's draft payable at sight. If that had been done Harvela wouldhave become registered owners of the shares on 15 October 1981 and entitled to anydividends distributed on the shares thereafter, while the vendors would have had theuse of the $2,175,000 to invest or deal with as they thought fit in the interest of thebeneficiaries of the trust of which they were trustees. Instead of that, because of thedelay on the part of the vendors between the closing date and that date on which

your Lordships' order for specific performance is complied with, all of which delay,amounting now to nearly four years, is the consequence of the vendors' anticipatorybreach of their contractual obligation and the ensuing litigation, Harvela has notreceived the dividends distributed on the shares, the amount of which is trivial; butthe rest of the profits made by Harvey & Co. Ltd. and its subsidiaries have beenretained in those companies, thus enhancing the value of the shares which will betransferred to Harvela under your Lordships' order, in return for the payment of$2,175,000. In the meantime, however, Harvela has continued to have the use ofthat sum. To fail to make allowance for the benefit that Harvela received by havingthe use of the *228 money would be to overcompensate it; to put it in a betterposition than that in which it would have been if the contractual obligations of Harvelaand the vendors had been timeously performed by both parties. Unless there hasbeen unconscionable conduct by a party against whom the remedy of specificperformance is granted sufficient to displace the general rule expressed in the maximof equity which I have mentioned, that rule ought to be applied by your Lordships. Forthe reasons given by Lord Templeman in his speech I agree that no unconscionableconduct by the vendors has been shown and that the appropriate measure of thevalue to Harvela of the use of the money during the period of delay is interest thereonreckoned at the short-term investment rate.

LORD EDMUND-DAVIES

My Lords, I have had the advantage of reading in draft the speeches prepared by mynoble and learned friends, Lord Diplock and Lord Templeman, and I gratefully adoptthem. I would accordingly allow this appeal and concur in making the declarations and


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orders proposed by Lord Templeman.

LORD BRIDGE OF HARWICH

My Lords, on the main issue I agree that, for all the reasons given in the speeches ofmy noble and learned friends, Lord Diplock and Lord Templeman, Sir Leonard'sreferential bid was not, on the true construction of the invitation, a valid offer.

Without intending to derogate in any way from the cogency of the other grounds forreaching that conclusion, there seems to me to be one that is decisive. The invitationembodied an undertaking not to disclose the details of any offer to any party beforethe deadline of 3 p.m. on Wednesday, 16 September 1981. Sir Leonard's referentialbid could not be quantified without reading into it the amount of Harvela's fixed bid.To do this before the deadline would have been, in my opinion, a breach of theundertaking. To do it after the deadline would have been too late.On all the other issues I agree, for the reasons given in the speech of my noble andlearned friend, Lord Templeman, with the conclusions which he expresses and theorders he proposes.

LORD TEMPLEMAN

My Lords, by telex messages ("the invitation") despatched on 15 September 1981 the

respondent vendors, the Royal Trust Company of Canada (C.I.) Ltd., invited theappellants, Harvela Investments Ltd. ("Harvela") and Sir Leonard Outerbridge ("SirLeonard"), to make offers to purchase the vendors' shares in A. Harvey & Co. Ltd.("the shares"). The invitation stipulated that offers must be made by sealed tender orconfidential telex which would not be divulged by the vendors before the invitationexpired at 3.00 p.m. on 16 September 1981 when the vendors would accept "thehighest offer." Completion of the purchase was to take place within 30 days of 16September 1981 in Canadian dollars.Harvela offered C$2,175,000. Sir Leonard offered C$2,100,000 "or C$101,000 inexcess of any other offer which you may receive which is expressed as a fixedmonetary amount, whichever is the higher." Harvela *229 claim the shares at theprice of $2,175,000. Sir Leonard claims the shares at the price of $2,276,000 as aresult of his referential offer of $101,000 more than Harvela's fixed offer. PeterGibson J. found in favour of Harvela. The Court of Appeal (Waller, Oliver and Purchas

L.JJ.) found in favour of Sir Leonard. This appeal is brought by Harvela with the leaveof your Lordships' House.The issued share capital of A. Harvey & Co. Ltd. ("the company") was held as to 43per cent. by the Harvey family, represented by Harvela, 40 per cent. by theOuterbridge family, represented by Sir Leonard, and 12 per cent. by the vendors.Acquisition of the shares by Harvela or by Sir Leonard would confer control of thecompany on the purchaser. When the vendors were tempted to sell the shares, aninitial offer of $443,600 by Harvela blossomed by 15 September 1981 into an offer byHarvela of $1,741,612, and an offer by Sir Leonard of $1,741,942, but the terms andconditions of the two offers were different. The Harvela offer was due to expire atclose of business on 15 September 1981, and Sir Leonard's offer was due to expire at5 p.m. on 16 September 1981. On 15 September 1981, the invitation was despatchedto Harvela and Sir Leonard. The full terms of the invitation, as subsequentlyamended, were as follows:"We have before us two similar offers but subject to differing terms and conditionsand value. Accordingly we invite you to submit to the Royal Trust Company of Canada(C.I.) Ltd. the registered holder of the shares referred to below any revised offerwhich you may wish to make by sealed tender or confidential telex to be submitted toour London solicitors, Messrs. Bischoff & Co., City Wall House, 79/83, Chiswell Street,London E.C.1 by 3 p.m. London time Wednesday 16 September 1981. Attention J.Jowitt who has undertaken not to disclose any details of any revised offer to any partybefore that time.... Tenders are to be submitted on the following terms: 1. Thattenders are a single offer for all shares held by us. 2. That payment of the agreedpurchase price shall be within 30 days of 16 September 1981. (The date of actualpayment hereafter called the 'closing date.') 3. Payment shall be in full on the closing


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date without any deduction. 4. The closing shall take place at Messrs. Bischoffs' office,payment being by banker's draft payable at sight drawn on the head office of aLondon clearing bank in Canadian dollars. 5. In the event that closing shall not takeplace within 30 days other than by reason of any delay on our part interest shall bepayable by the purchaser on the full purchase price at a rate higher by 4 per cent.than the Bank of Montreal prime rate from time to time for Canadian dollar loans. Wehereby agree subject to acceptance by us of any offer made by you:... (c) We confirm

that if any offer made by you is the highest offer received by us we bind ourselves toaccept such offer provided that such offer complies with the terms of this telex...."Before the invitation expired, Harvela and Sir Leonard made the offers which resultedin this litigation, namely, by Harvela $2,175,000 and by Sir Leonard $2,100,000 "orC$101,000 in excess of any other *230 offer which you may receive which isexpressed as a fixed monetary amount, whichever is the higher."Where a vendor undertakes to sell to the highest bidder, the vendor may conduct thesale by auction or by fixed bidding. In an auction sale each bidder may adjust his bidby reference to rival bids. In an auction sale the purchaser pays more than any otherbidder is prepared to pay to secure the property. The purchaser does not necessarilypay as much as the purchaser was prepared to pay to secure the property. In anauction a purchaser who is prepared to pay $2.5m. to secure a property will be ableto purchase for $2.2m. if no other bidder is prepared to offer as much as $2.2m.In a fixed bidding sale, a bidder may not adjust his bid. Each bidder specifies a fixed

amount which he hopes will be sufficient, but not more than sufficient, to exceed anyother bid. The purchaser in a fixed bidding sale does not necessarily pay as much asthe purchaser was prepared to pay to secure the property. But any bidder whospecifies less than his best price knowingly takes a risk of being outbid. In a fixedbidding sale a purchaser who is prepared to pay $2.5m. to secure the property maybe able to purchase for $2.2m. if the purchaser offers $2.2m. and no other bidderoffers as much as $2.2m. But if a bidder prepared to pay $2.5m. only offers $2.2m.he will run the risk of losing the property and will be mortified to lose the property ifanother bidder offers $2.3m. Where there are two bidders with ample resources, eachdetermined to secure the property and to prevent the other bidder from acquiring theproperty, the stronger will prevail in the fixed bidding sale and may pay more than inan auction which is decided not by the strength of the stronger but by the weaknessof the weaker of the two bidders. On the other hand, an open auction provides thestimulus of perceived bidding and compels each bidder, except the purchaser, to bid

up to his maximum.Thus auction sales and fixed bidding sales are liable to affect vendors and purchasersin different ways and to produce different results. The first question raised by thisappeal, therefore, is whether Harvela and Sir Leonard were invited to participate in afixed bidding sale, which only invited fixed bids, or were invited to participate in anauction sale, which enabled the bid of each bidder to be adjusted by reference to theother bid. A vendor chooses between a fixed bidding sale and an auction sale. Abidder can only choose to participate in the sale or to abstain from the sale. Theascertainment of the choice of the vendors in the present case between a fixedbidding sale and an auction sale by means of referential bids depends on thepresumed intention of the vendors. That presumed intention must be deduced fromthe terms of the invitation read as a whole. The invitation contains three provisionswhich are only consistent with the presumed intention to create a fixed bidding saleand which are inconsistent with any presumed intention to create an auction sale bymeans of referential bids.By the first significant provision, the vendors undertook to accept the highest offer;this shows that the vendors were anxious to ensure that a sale should result from theinvitation. By the second provision, the vendors extended the same invitation toHarvela and Sir Leonard: this *231 shows that the vendors were desirous that eachof them, Harvela and Sir Leonard, and nobody else should be given an equalopportunity to purchase the shares. By the third provision, the vendors insisted thatoffers must be confidential and must remain confidential until the time specified bythe vendors for the submission of offers had elapsed; this shows that the vendorswere desirous of provoking from Sir Leonard an offer of the best price he wasprepared to pay in ignorance of the bid made by Harvela and equally provoking from


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Harvela the best price they were prepared to pay in ignorance of the bid made by SirLeonard.A fixed bidding sale met all the requirements of the vendors deducible from the termsof the invitation. A fixed bidding sale was bound to result in a sale of shares save inthe unlikely event of both Harvela and Sir Leonard failing to respond to the invitation.A fixed bidding sale gave an equal opportunity to Harvela and Sir Leonard to acquirethe shares. A fixed bidding sale provoked the best price, or at any rate something

approximate to the best price, which the purchaser was prepared to pay to secure theshares and to ensure that the rival bidder did not acquire the shares. On the otherhand, if the invitation is construed so as to create an auction sale by means ofreferential bids, the requirements of the vendors deducible from the terms of theinvitation could not be met.First, if referential bids were permissible, there was a danger, far from negligible, thatthe sale might be abortive and the shares remain unsold. The shares would only besold if at least one bidder submitted a fixed bid and the other bidder based hisreferential offer on that fixed bid. In the events which happened, Harvela put forwarda fixed bid of $2,175,000 and Sir Leonard made a referential bid of $101,000 morethan Harvela's fixed bid, thus enabling Sir Leonard's referential bid to be quantified at$2,276,000. But if Sir Leonard's referential bid had not been expressed to be basedon Harvela's fixed bid, or if Harvela had not made a fixed bid but only a referentialbid, then Sir Leonard's bid could not have been quantified. Similarly, if Harvela had

made a referential bid not expressed to be tied to Sir Leonard's fixed bid, or if SirLeonard had not made a fixed bid but only a referential bid, then Harvela's bid couldnot have been quantified. The sale would have been abortive although both bidderswere anxious to purchase and submitted offers.Secondly, if referential bids were permissible, there was also a possibility, which infact occurred, that one bidder would never have an opportunity to buy. In the presentcase Harvela, by putting forward a fixed bid, could never succeed in buying the sharesalthough the invitation had been extended to them. Harvela's only part in the salewas unwittingly to determine the price at which Sir Leonard was entitled and bound topurchase the shares. Harvela could not win and Sir Leonard could not lose. There wasnothing in the invitation to warn Harvela that they must submit a referential bid ifthey wished to make sure of being able to compete with Sir Leonard. There wasnothing in the invitation which indicated to Sir Leonard that he was entitled to submita referential bid. But no one has argued that the invitation did *232 not invite fixed

bids; indeed, Sir Leonard submitted a fixed bid, albeit as an unsuccessful alternativeto his referential bid.Thirdly, if referential bids were permissible, the vendors' object of provoking the bestprice that Harvela and Sir Leonard were each prepared to offer in ignorance of therival bid was frustrated. Harvela put forward the fixed bid of $2,175,000 whichrepresented the amount which Harvela hoped would exceed Sir Leonard's bid andwhich, because Harvela were bidding in ignorance of Sir Leonard's bid, must be orapproximate to the best price which Harvela were prepared to pay to secure theshares and to ensure that Sir Leonard did not acquire the shares. Sir Leonard did notput forward his best price; Sir Leonard put forward his worst price, $2,100,000, butdeclared that he would pay $101,000 more than Harvela. Sir Leonard could haveachieved the same purpose by offering five dollars or one dollar more than Harvela. IfSir Leonard had appreciated that he was taking part in a fixed bidding sale, then,judging by his minimum fixed bid of 2,100,000 and his unlimited referential bid, hemight have been prepared to offer as his best price more than the sum of $2,276,000which he now claims to be the purchase price of the shares. We shall never knowbecause Sir Leonard did not reveal his best price.Finally, if referential bids were permissible by implication, without express provision inthe invitation for that purpose, and without any indication in the invitation of thenature of the referential bids which would be acceptable, the results could have beenbizarre. In the present case, Sir Leonard bid $2,100,000 or $101,000 in excess ofHarvela's fixed bid. If Harvela had bid $2,000,000 or one dollar more than SirLeonard's fixed bid, then Sir Leonard would have become the purchaser with hisreferential bid of $2,101,000 as against Harvela's referential bid of $2,100,001. But ifHarvela had offered $1,900,000 or one dollar more than Sir Leonard's fixed bid, then


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Harvela would have been the purchaser at their referential bid of $2,100,001 asagainst Sir Leonard's referential bid of $2,001,000. Sir Leonard's bid in the secondexample is the same as his bid in the first example but he loses. Harvela's bid in thesecond example is lower than Harvela's bid in the first example but Harvela wins. Thevendors are worse off by $999 in the second example.It would have been possible for the vendors to conduct an auction sale through themedium of confidential referential bids but only by making express provision in the

invitation for the purpose. It would not have been sufficient for the invitationexpressly to authorise "referential bids" without more. For such an authorisationwould have rendered the result of the sale uncertain and random in view of theillustrations and examples I have already given. It would have been necessary for theinvitation to require each bidder who made a referential bid to specify a maximumsum he was prepared to bid. That requirement would ensure that the sale was notabortive and that both bidders had a genuine chance of winning. A maximum bidrequirement would ensure a sale at a price in excess of the maximum bid of theunsuccessful bidder, but it would not necessarily procure a sale at the maximum priceof the successful bidder. The sale would in effect be an auction sale and produce theconsequences of an auction sale because the vendors would *233 have made expressprovision for bids to be adjusted and finalised by reference to the maximum bid of theunsuccessful bidder. But without such express provisions the invitation is notconsistent with an auction sale.

To constitute a fixed bidding sale all that was necessary was that the vendors shouldinvite confidential offers and should undertake to accept the highest offer. Such wasthe form of the invitation. It follows that the invitation upon its true constructioncreated a fixed bidding sale and that Sir Leonard was not entitled to submit and thevendors were not entitled to accept a referential bid.The argument put forward by Mr. Price on behalf of Sir Leonard was that thereferential bid is an "offer" and therefore Sir Leonard was entitled to submit areferential bid. In acceding to this argument, the Court of Appeal recognised that theconsequences could be unfortunate and would be unforeseeable; the Court of Appealwere inclined to blame such unfortunate and unforeseeable consequences on thevendors for binding themselves to accept the highest bid or for not expresslyforbidding the submission of a referential bid. My Lords, in my opinion the argumentbased on the possible meaning of the word "offer " confuses definition withconstruction and the procedure adopted by the vendors is not open to justifiable

criticism because the invitation was clear and unambiguous. The court is notconcerned to define the word "offer" in isolation, without regard to its context and byreference to the widest possible meaning which can be culled from the weightiestavailable dictionary. The mere use by the vendors of the word "offer" was notsufficient to invoke all the frustrating dangers and uncertainties which inevitablyfollow from uncontrolled referential bids. The task of the court is to construe theinvitation and to ascertain whether the provisions of the invitation, read as a whole,create a fixed bidding sale or an auction sale. I am content to reach a conclusionwhich reeks of simplicity, which does not require a draftsman to indulge inprohibitions, but which obliges a vendor to specify and control any form of auctionwhich he seeks to combine with confidential bidding. The invitation required SirLeonard to name his price and required Harvela to name their price and bound thevendors to accept the higher price. The invitation was not difficult to understand andthe result was bound to be certain and to accord with the presumed intentions of thevendors discernible from the express provisions of the invitation. Harvela named theprice of $2,175,000; Sir Leonard failed to name any price except $2,100,000 whichwas less than the price named by Harvela. The vendors were bound to acceptHarvela's offer.I am also content to follow the decision reached by Sir Nathanial Lindley M.R. andRigby and Vaughan Williams L.JJ. in South Hetton Coal Co. v. Haswell, Shotton andEasington Coal and Coke Co. [1898] 1 Ch. 465. In the South Hetton case there wasno fixed bid but only a referential bid by one bidder of 200 more than the amountoffered by the other bidder who offered 31,000. The referential bid was held to beinvalid. The South Hetton case was decided by a powerful court, has stoodunchallenged for over 80 years and was binding on the Court of Appeal in the present


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case. It was argued that Sir Leonard's unsuccessful *234 valid bid of $2,100,000 insome unexplained fashion transformed his invalid referential bid into a valid bid, butthe argument owes everything to wishful thinking and nothing to logic. It was alsoargued that the South Hetton case was distinguishable because the vendors in thatcase undertook to accept "the highest net money tender," whereas in the presentcase the vendors undertook to accept "the highest offer." The argument seeks toelevate a trivial difference into a legal distinction. The decision in the South Hetton

case was followed by a majority of the members of the New York Court

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