Entores Ltd v Miles Far East Corporation [1955] 2 All ER 493

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Entores Ltd v Miles Far East Corporation [1955] 2 All ER 493
CONTRACT

COURT OF APPEAL
DENNING, BIRKETT AND PARKER LJJ
2, 3, 17 MAY 1955

17 May 1955. The following judgments were delivered.

Contract - Service of writ - Service out of jurisdiction - Contract - Whether made in jurisdiction - Acceptance by Telex in London.

Practice - Service - Service out of jurisdiction - Contract - Whether made in jurisdiction - Acceptance by Telex in London - Message from Amsterdam to London.

An English company in London was in communication with a Dutch company in Amsterdam (acting as agent for an American principal) by Telex, each company having in its office a teleprinter machine by means of which, on the two machines being connected by the Post Office, a message typed by one company's clerk was simultaneously and automatically typed out on paper by the other's machine. The English company received an offer of goods from the Dutch company by Telex and made a counter-offer which the Dutch company accepted by Telex. The English company applied under RSC, Ord 11, r 1, for leave to serve notice of the writ in an action for damages for breach of the contract on the American principal out of the jurisdiction.

Held - the contract was made at the place where the English company received the acceptance, which in this case was London, and therefore the contract was made within the jurisdiction and leave for service out of the jurisdiction could be properly given under RSC, Ord 11, r 1.

Observations of Hill J in Newcomb v De Roos (1859) (2 E & E at p 275) disapproved.

Appeal dismissed.

Notes
An offer is accepted by the communication of the acceptance to the offeror; see 8 Halsbury's Laws (3rd Edn) 73, para 126; and for cases on the subject, see 12 Digest (Repl) 72, 397-406. The rule is modified where contracts are made through the post, for an offer made by letter may be accepted by letter and the Post Office is in effect the agent of the offeror for the purpose of communicating the acceptance; see 8 Halsbury's Laws (3rd Edn) 78, 79. In the present case the Court of Appeal do not extend this exception from the general rule to the case of contracts made by the Post Office Telex services.

Cases referred to in judgments
Newcomb v De Roos (1859), 2 E & E 271, 29 LJQB 4, 1 LT 6, 121 ER 103, 12 Digest (Repl) 62, 339.

Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256, 62 LJQB 257, 67 LT 837, 57 JP 325, 12 Digest (Repl) 59, 323.

Adams v Lindsell (1818), 1 B & Ald 681, 106 ER 250, 12 Digest (Repl) 86, 477.

Dunlop v Higgins (1848), 1 HL Cas 381, 9 ER 805, 12 Digest (Repl) 86, 470.

Re Imperial Land Co of Marseilles, Harris' Case (1872), 7 Ch App 587, 41 LJCh 621, 26 LT 781, 12 Digest (Repl) 85, 465.

Household Fire & Carriage Accident Insurance Co v Grant (1879), 4 ExD 216, 48 LJQB 577, 41 LT 298, 44 JP 152, 12 Digest (Repl) 72, 398.

Appeal
The defendants appealed against an order of Donovan J dated 3 March 1955, dismissing an appeal from an order of Master Lawrence, dated 17 February 1955, dismissing an application by the defendants for the discharge of an order dated 17 December 1954, giving liberty to the plaintiffs to serve notice of a writ in an action for damages for breach of contract on the defendants out of the jurisdiction (in New York). The defendants contended that the contract, which was made by Telex, the messages being conveyed between two teleprinter machines owned by the two companies and connected up by the Post Office, was made out of the jurisdiction and, therefore, could not be made the subject of leave for service out of the jurisdiction under RSC, Ord 11, r 1.

Gerald Gardiner QC and S B R Cooke for the defendants.
Maurice Lyell QC and D Lloyd for the plaintiffs.

Cur adv vult

DENNING LJ. This is an application for leave to serve notice of a writ out of the jurisdiction. The grounds are that the action is brought to recover damages for breach of a contract made within the jurisdiction or by implication to be governed by English law.

The plaintiffs are an English company. The defendants are an American corporation with agents all over the world, including a Dutch company in Amsterdam. The plaintiffs say that the contract was made by Telex between the Dutch company in Amsterdam and the plaintiffs in London. Communications by Telex are comparatively new. Each company has a teleprinter machine in its office, and each has a Telex number like a telephone number. When one company wishes to send a message to the other, it gets the Post Office to connect up the machines. Then a clerk at one end taps the message on to his machine just as if it were a typewriter, and it is instantaneously passed to the machine at the other end, which automatically types the message on to paper at that end.

The relevant Telex messages in this case were as follows: 8 September 1954: Dutch company:


"Offer subject cable confirmation for account our associates Miles Far East Corporation Tokyo up to 400 tons Japanese cathodes sterling 240 longton c.i.f. shipment Mitsui Line Sept. 28 or Oct. 10 payment by Lc. ... Your reply Telex Amsterdam 12174 or phone 31490 before 4 p.m. invited."


Plaintiffs:


"Accept 100 longtons cathodes Japanese astm specification shipment latest Oct. 10 sterling 1 333 sterling 239.10.0 longton c.i.f. London/Rotterdam optional bladings payment letter credit stop Please confirm‎ latest tomorrow."


Dutch company:


"We received O.K. Thank you."


9 September 1954: Plaintiffs:


"Regarding our telephone conversation a few minutes ago we are pleased to note that our bid for 100 tons Japanese cathodes for payment in French francs has been accepted stop Further we note that there is a query on the acceptance of our bid for 100 tons payment in sterling and you are ascertaining that your Tokyo office will confirm‎ the price to be longtons we therefore await to hear from you further."


10 September 1954: Plaintiffs:


"Is the price for the sterling cathodes understood to be per longton by Japan as you were going to find this out yesterday?"


Dutch company:


"Yes, price 239.10. per longton."


At that step there was a completed contract by which the defendants agreed to supply one hundred tons of cathodes at a price of ?39 10s a ton. The offer was sent by Telex from England offering to pay ?39 10s for one hundred tons and accepted by Telex from Holland. The question for our determination is: Where was the contract made?

When a contract is made by post it is clear law throughout the common law countries that the acceptance is complete as soon as the letter of acceptance is put into the post box, and that is the place where the contract is made. But there is no clear rule about contracts made by telephone or by Telex. Communications by these means are virtually instantaneous and stand on a different footing.

The problem can only be solved by going in stages. Let me first consider a case where two people make a contract by word of mouth in the presence of one another. Suppose, for instance, that I shout an offer to a man across a river or a courtyard but I do not hear his reply because it is drowned by an aircraft flying overhead. There is no contract at that moment. If he wishes to make a contract, he must wait till the aircraft is gone and then shout back his acceptance so that I can hear what he says. Not until I have his answer am I bound. I do not agree with the observations of Hill J in Newcomb v De Roos (2 E & E at p 275).

Now take a case where two people make a contract by telephone. Suppose, for instance, that I make an offer to a man by telephone and, in the middle of his reply, the line goes "dead" so that I do not hear his words of acceptance. There is no contract at that moment. The other man may not know the precise moment when the line failed. But he will know that the telephone conversation was abruptly broken off, because people usually say something to signify the end of the conversation. If he wishes to make a contract, he must therefore get through again so as to make sure that I heard. Suppose next that the line does not go dead, but it is nevertheless so indistinct that I do not catch what he says and I ask him to repeat it. He then repeats it and I hear his acceptance. The contract is made, not on the first time when I do not hear, but only the second time when I do hear. If he does not repeat it, there is no contract. The contract is only complete when I have his answer accepting the offer.

Lastly take the Telex. Suppose a clerk in a London office taps out on the teleprinter an offer which is immediately recorded on a teleprinter in a Manchester office, and a clerk at that end taps out an acceptance. If the line goes dead in the middle of the sentence of acceptance, the teleprinter motor will stop. There is then obviously no contract. The clerk at Manchester must get through again and send his complete sentence. But it may happen that the line does not go dead, yet the message does not get through to London. Thus the clerk at Manchester may tap out his message of acceptance and it will not be recorded in London because the ink at the London end fails or something of that kind. In that case the Manchester clerk will not know of the failure but the London clerk will know of it and will immediately send back a message "not receiving". Then, when the fault is rectified, the Manchester clerk will repeat his message. Only then is there a contract. If he does not repeat it, there is no contract. It is not until his message is received that the contract is complete.

In all the instances I have taken so far, the man who sends the message of acceptance knows that it has not been received or he has reason to know it. So he must repeat it. But suppose that he does not know that his message did not get home. He thinks it has. This may happen if the listener on the telephone does not catch the words of acceptance, but nevertheless does not trouble to ask for them to be repeated: or if the ink on the teleprinter fails at the receiving end, but the clerk does not ask for the message to be repeated: so that the man who sends an acceptance reasonably believes that his message has been received. The offeror in such circumstances is clearly bound, because he will be estopped from saying that he did not receive the message of acceptance. It is his own fault that he did not get it. But if there should be a case where the offeror without any fault on his part does not receive the message of acceptance-yet the sender of it reasonably believes it has got home when it has not-then I think there is no contract.

My conclusion is that the rule about instantaneous communications between the parties is different from the rule about the post. The contract is only complete when the acceptance is received by the offeror: and the contract is made at the place where the acceptance is received.

In a matter of this kind, however, it is very important that the countries of the world should have the same rule. I find that most of the European countries have substantially the same rule as that I have stated. Indeed they apply it to contracts by post as well as instantaneous communications. But in the United States of America it appears as if instantaneous communications are treated in the same way as postal communications. In view of this divergence, I think we must consider the matter on principle; and so considered, I have come to the view I have stated, and I am glad to see that Professor Winfield in this country (55 Law Quarterly Review at p 514) and Professor Williston in the United States of America (Contracts I S 82) takes the same view.

Applying the principles which I have stated, I think that the contract in this case was made in London where the acceptance was received. It was therefore a proper case for service out of the jurisdiction.

Apart from the contract by Telex, the plaintiffs put the case in another way. They say that the contract by Telex was varied by letter posted in Holland and accepted by conduct in England, and that this amounted to a new contract made in England. The Dutch company on 11 September 1954, wrote a letter to the plaintiffs saying:


"We confirm‎ having sold to you for account of our associates in Tokyo ... 100 metric tons ... electrolitic copper in cathodes ... ?39 10s. per longton of 1016 kilos c.i.f. U.K./Continental main ports ... prompt shipment from a Japanese port after receipt of export licence ... payment by irrevocable and transferable letter of credit to be opened in favour of Miles Far East Corporation ... with a first class Tokyo Bank ... The respective import licence has to be sent directly without delay to Miles Far East Corporation."


The variations consisted in the ports of delivery, the provisions of import licence and so forth. The plaintiffs say that they accepted the variations by dispatching from London the import licence and giving instructions in London for the opening of the letter of credit, and that this was an acceptance by conduct which was complete as soon as the acts were done in London.

I am not sure that this argument about variations is correct. It may well be that the contract is made at the place where first completed, not at the place where the variations are agreed. But whether this be so or not, I think the variations were accepted by conduct in London and were therefore made in England. Both the original contract and ensuing variations were made in England and leave can properly be given for service out of the jurisdiction.

I am inclined to think also that the contract is by implication to be governed by English law, because England is the place with which it has the closest connection. I think the decisions of the master and the judge were right and I would dismiss the appeal.

BIRKETT LJ. I can state very briefly my agreement with the judgment just delivered by my Lord. The plaintiffs wished to bring an action against Miles Far East Corporation for damages for breach of contract. The plaintiffs are a company registered and resident in England, the registered office being in the city of London. The defendants are a corporation with headquarters at 150, Broadway, New York, in the State of New York. In September, 1954, a series of communications passed between the plaintiffs and the defendants by means of an equipment called Telex service, consisting of a teleprinter and signalling unit and certain necessary subsidiary apparatus possessed by both parties. The communications are virtually instantaneous, for the moment one party types out the message the other party ought to be receiving it in the ordinary course of things.

The plaintiffs claim they entered into a contract with the defendants for the purchase of copper cathodes and they seek to issue a writ claiming damages for the breach of the contract by the defendants. They were given leave to serve notice of a writ on the defendants in New York out of the jurisdiction. This appeal is against a decision of Donovan J dismissing the appeal against the order giving leave.

The plaintiffs contend that the contract was made in England and therefore comes within RSC, Ord 11, r 1, whereby the court or a judge may allow service of a writ outside the jurisdiction, where the action is one brought against a defendant for damages for breach of a contract made within the jurisdiction. The defendants say the contract was not made in England but was made in Holland. There were several Telex communications but the important ones for this appeal are the counter-offer of 8 September 1954, made by the plaintiffs in London, and the acceptance from the defendants received in London also, on 10 September 1954.

I am of opinion that in the case of Telex communications (which do not differ in principle from the cases where the parties negotiating a contract are actually in the presence of each other) there can be no binding contract until the offeror receives notice of the acceptance from the offeree. Counsel for the defendants submitted that the proper principle to be applied to a case like the present could be thus stated: "If A makes an offer to B, there is a concluded contract when B has done all that he can do to communicate his acceptance by approved methods." He further submitted that great difficulties would arise if Telex communications were treated differently from acceptances by post or telegram.

In my opinion the cases governing the making of contracts by letters passing through the post have no application to the making of contracts by Telex communications. The ordinary rule of law, to which the special considerations governing contracts by post are exceptions, is that the acceptance of an offer must be communicated to the offeror and the place where the contract is made is the place where the offeror receives the notification of the acceptance by the offeree. If a Telex instrument in Amsterdam is used to send to London the notification of the acceptance of an offer, the contract is complete when the Telex instrument in London receives the notification of the acceptance (usually at the same moment that the message is being printed in Amsterdam) and the acceptance is then notified to the offeror, and the contract is made in London. Such were the facts in this appeal, and I agree with the judgment of Donovan J and this appeal should be dismissed.

PARKER LJ. I have come to the same conclusion, and would only add a few words on the basis that the contract sued on is that created by the Telex messages. As was said by Lindley LJ in Carlill v Carbolic Smoke Ball Co ([1893] 1 QB at p 262):


"Unquestionably, as a general proposition, when an offer is made, it is necessary in order to make a binding contract, not only that it should be accepted, but that the acceptance should be notified."


Bowen LJ said (ibid, at p 269):


"One cannot doubt that, as an ordinary rule of law, an acceptance of an offer made ought to be notified to the person who makes the offer, in order that the two minds may come together. Unless this is done the two minds may be apart, and there is not that consensus which is necessary according to the English law-I say nothing about the laws of other countries-to make a contract."


Accordingly, as a general rule, a binding contract is made at the place where the offeror receives notification of the acceptance, that is where the offeror is.

Since, however, the requirement as to actual notification of the acceptance is for the benefit of the offeror, he may waive it and agree to the substitution for that requirement of some other conduct by the acceptor. He may do so expressly, as in the advertisement cases, by intimating that he is content with the performance of a condition. Again he may do so impliedly by indicating a contemplated method of acceptance, eg, by post or telegram. In such a case he does not expressly dispense with actual notification, but he is held to have done so impliedly on grounds of expediency. Thus in Adams v Lindsell the court pointed out that, unless this were so (1 B & Ald at p 683):


"... no contract could ever be completed by the post. For if the defendants were not bound by their offer when accepted by the plaintiffs till the answer was received, then the plaintiffs ought not to be bound till after they had received the notification that the defendants had received their answer and assented to it. And so it might go on ad infinitum."


Again in Dunlop v Higgins Lord Cottenham LC pointed out that (1 HL Cas at p 400):


"Common sense tells us that transactions cannot go on without such a rule ... "


and in Re Imperial Land Co of Marseilles, Harris' Case, Mellish LJ (7 Ch App at p 594) referred to the mischievous consequences which would follow in commerce if no such rule was adopted. To the same effect is the judgment of Thesiger LJ in Household Fire & Carriage Accident Insurance Co v Grant, in which he points out (4 Ex D at pp 223, 224) that, where the parties are at a distance, the balance of convenience dictates that the contract shall be deemed complete when the acceptance is handed to the Post Office.

Where, however, the parties are in each other's presence or, though separated in space, communication between them is in effect instaneous, there is no need for any such rule of convenience. To hold otherwise would leave no room for the operation of the general rule that notification of the acceptance must be received. An acceptor could say: "I spoke the words of acceptance in your presence, albeit softly, and it matters not that you did not hear me"; or: "I telephoned to you and accepted and it matters not that the telephone went dead and you did not get my message". Though in both these cases the acceptor was using the contemplated, or indeed the expressly indicated, mode of communication, there is no room for any implication that the offeror waived actual notification of the acceptance. It follows that I cannot agree with the observations of Hill J in Newcomb v De Roos (2 E & E at p 275).

So far as Telex messages are concerned, though the dispatch and receipt of a message is not completely instantaneous, the parties are to all intents and purposes in each other's presence, just as if they were in telephonic communication, and I can see no reason for departing from the general rule that there is no binding contract until notice of the acceptance is received by the offeror. That being so and, since the offer-a counter-offer-was made by the plaintiffs in London and notification of the acceptance was received by them in London, the contract resulting therefrom was made in London. I would accordingly dismiss the appeal.

Appeal dismissed. Leave to appeal to the House of Lords refused.

Solicitors: Allen & Overy (for the defendants); Smiles & Co (for the plaintiffs).

F A Amies Esq Barrister.