W S Karoulias Sa v Drambuie Liqueur Company [2004] ScotCS 189 (30 July 2004)

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Cite as: [2004] ScotCS 189

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OUTER HOUSE, COURT OF SESSION

CA42/04

OPINION OF LORD CLARKE

in the cause

W S KAROULIAS SA

Pursuer;

against

THE DRAMBUIE LIQUEUR COMPANY LIMITED

Defenders:

________________

Pursuer: Currie QC, Fairley; Maclay Murray & Spens

Defenders: Keen QC, Howlin; Dundas & Wilson CS

30 July 2004

Introduction
[1] This Commercial Action is concerned with the arrangements for the distribution of the defender's product in Greece, in particular the well known whiskey based liqueur known as Drambuie. The pursuer, in Article 2 of condescendence, avers as follows:

"The pursuer is one of the leading wine and spirits marketing and distribution companies in Greece. It has traded in the business of wine and spirits marketing and distribution since 1962. It first distributed the defenders' product, "Drambuie" around 1975. In 1993, the pursuer and the defender entered into an agreement ("the First Agreement") whereby the pursuer agreed to act as the exclusive distributor in Greece of the defenders' whiskey based liqueur known as "Drambuie" for a period of five years from 1 January 1994. Pursuant to the First Agreement, the pursuer expended considerable effort in marketing and selling Drambuie throughout Greece."

[2] The pursuer goes on to aver that the First Agreement was "commercially successful and contributed significantly to the success of the Drambuie brand in Greece". The pursuer's averments continue "Accordingly, in 1998 the parties entered into a further agreement ("the Second Agreement") whereby the pursuer agreed to continue to act as the exclusive distributor of Drambuie in Greece for a period of five years from 1 July 1998. Though its performance of the First and Second Agreements, the pursuer succeeded in establishing Greece as the second most important market in the world for Drambuie, and achieved greater sales of Drambuie in Greece than the products own home market". All these matters are admitted in Answer 2, by the defender.

[3] In Article 3 of condescendence the pursuer avers as follows:

"In the summer of 2002, the parties entered into discussions with a view to concluding a new five year distribution agreement to take effect from 1 July 2003. A draft agreement was prepared by the defender. Revisals to the draft were discussed by the parties. Various exchanges took place by e-mail between the pursuer's Managing Director, Mr Chris Arghyrou and the defenders' Director of Legal/Corporate Affairs, Mr Stuart Jeffray. In particular, by e-mail dated 30 December 2002, Mr Arghyrou suggested a number of changes to the draft agreement. On 30 January 2003, Mr Jeffray responded to Mr Arghyrou inter alia in the following terms:

"Dear Chris,

I am attaching for your approval the final draft of the Agreement, which incorporates all the changes requested in your e-mail of 30 December, subject to a small amendment in 10.3.

Once you have confirmed that it is in order, I shall send two copies for signature."

By e-mail to Mr Jeffray, dated 5 February 2003, Mr Arghyrou intimated his agreement to the whole terms of the said document. An agreement ("the Third Agreement") was thereby concluded between the parties which incorporated the whole terms of the said document attached to Mr Jeffray's said e-mail of 30 January 2003"

[4] The defender denies that any Third Agreement was ever concluded between the parties. In Answer 3 it avers:

"Explained and averred that no concluded agreement was reached between the parties regarding the final terms of the so called Third Agreement and in any event the so called Third Agreement was not signed on behalf of either of the parties. The parties did not intend to be bound by the so called Third Agreement (or any variant of it) unless and until it was signed. Consequently, the so called "Third Agreement" has never come into force and is of no effect."

[5] It is a matter of agreement between the parties that, by a letter to the pursuer dated 11 June 2003, the defender purported to serve notice of termination of the Second Agreement between the parties with effect from 31 December 2003. It is also a matter of agreement between the parties that on or about 8 December 2003 the defender intimated it would not thereafter supply the pursuer with its product and that it intended to pass exclusive distribution rights in Greece to a third party. The pursuer claims, in the present proceedings, that the defender was, thereby, in breach of the Third Agreement with the pursuer and the pursuer seeks declarator regarding the terms and effect of the Third Agreement, an order for specific implement, and failing specific implement, compensation of €4,000,000. The defender has a counter claim for certain orders and for interdict and interim interdict against the pursuer in relation to the pursuer taking steps in Greece regarding the advertising of the defenders' product. There are also proceedings pending before the Greek Courts regarding the dispute between the parties, and the rights of the third party, which the defender has sought to establish as their exclusive distributor in Greece.

[6] In the present proceedings the defender has a plea to the relevancy of the pursuers' pleadings. The defenders sought to debate this plea and I acceded to a motion in that respect.

[7] As well as the documents lodged with the summons, the pursuer refers to certain documents in its averments. At the commencement of the debate hearing before me, senior counsel for the defender sought leave to refer to other documents which are included in an inventory of productions for the defender. Senior counsel for the pursuer opposed this. He said that no agreement had been arrived at as to what documents might be considered, by the Court, for the purposes of testing the relevancy of the pursuers pleadings, beyond those lodged by the pursuer with the summons, and referred to in the pleadings. In the event, senior counsel for the defender did not press his motion and was content to debate the relevancy of the pursuer's pleadings with reference only to the documents attached to the summons and referred to in the pursuers pleadings.

The Second Agreement
[8] It is appropriate that, at this stage, I sent out certain provision of the distribution agreement, referred to by both parties as the Second Agreement, (6/17 of process), which provisions were the subject of some discussion before me. Section 9.1 of the Agreement is in the following terms:

"This agreement shall come into force the first day of July nineteen hundred and ninety eight and, subject to the other provisions of this agreement, shall continue in force for a period of five years from such date and thereafter and unless and until terminated by either party giving to the other not less than six months notice in writing, expiring on or after the expiry of the said five year period".

Section 13.1 of the Agreement provides as follows:

"This Agreement supersedes and cancels all prior agreements and understandings, whether written or oral between the DISTRIBUTOR and the COMPANY relating to subject matter hereof".

Section 13.2 of the Agreement provides:

"This Agreement states the entire agreement of the parties and there exists no other written or oral agreement as of the date hereof, not superseded and cancelled in accordance with Section 13.1 hereof, as to the subject matter hereof".

Section 13.3 of the Agreement states:

"No amendment or modification or extension of this Agreement shall be binding upon either of the parties hereto, unless made in writing and signed by duly authorised officers of both parties."

The Agreement bears to have been subscribed by two Directors of the pursuer and two Directors of the defender on 2^nd and 12^th May 1998.

"The Third Agreement"
[9] The Agreement referred to by the pursuer as the "Third Agreement" is similar in substance to the Second Agreement, but differs in its terms in certain material respects. It is number 6/3 of process. Section 9.1 of the "Third Agreement" provides:

"This Agreement shall come into force the first day of July two thousand and three and, subject to the remaining provisions of Article 9, this agreement, shall continue in force for a period of five years from such date".

Section 14 of the "Third Agreement" is in identical terms to Section 13 of the Second Agreement.

[11] Senior counsel, however, contended that, in the event that the Court did not favour the foregoing submissions, there was another basis for holding that the pursuer's case, as pled, was irrelevant. The pursuer's case depended on the unexecuted "Third Agreement" being binding on both parties, but the pursuer had not made averments, which if proved, could satisfy the Court that the parties had intended to be bound by the unsigned agreement from the 5 February 2003 onwards. While it was always possible that the parties could have agreed to be bound by the terms of an informal, unexecuted contract, even though they had anticipated that it would be subsequently formalised and executed, the presumption, in a case like the present, where the parties had deliberately prepared a document for execution, was that they did not intend to be bound by its terms until the document was actually executed. This submission was made under reference to the decision of the House of Lords in the case of Gordon's Executor v Gordon (1918) 1 SLT 407. That case was concerned with a family dispute concerning a will, which had resulted in a compromise agreement among the potential beneficiaries being entered into. Thereafter, one of the parties to the agreement, sought to alter its basis and a meeting took place among the parties or persons said to represent them. After discussion, a document was drawn up, expressed to be an agreement binding the beneficiaries. The document was not signed by all the parties to it. A dispute arose among the parties before the agreement was actually signed by all of them. The House of Lords held that, taking the evidence as a whole in the case, the parties had not intended to be bound by what was embodied in the document whose terms had been set out at the meeting - (see the speech of Lord Chancellor Cairns at page 410, 2^nd col. to page 411, 1st col.). It is, I think, of importance to note, that it appears from the speech of the Lord Chancellor, at page 410, that the decision in that case was, probably, influenced, to some extent, by the question as to whether or not there had been authority, on the part of those persons said to represent certain of the beneficiaries, at the meeting, to bind those beneficiaries, at the meeting, to what was proposed.

[12] Senior counsel for the defenders founded, in particular, on a passage in the speech of Viscount Haldane at page 411, first column, which is to the following effect:

"In a case such as the present it would have of course been open to those concerned to reach a definite and concluded agreement in conversation or by correspondence. Such an agreement is not the less a real one if the parties have, as part of its terms, stipulated that there is to be a further agreement embodying its substance and also other terms which they are subsequently to settle. In such a case the later agreement when concluded and executed, will supersede the earlier one. But until then the earlier agreement stands and binds.

As I have said, parties may contract in this fashion. But when they desire to do so they must make the intention plain of closing the negotiation in its first stage by a completed bargain. For if it appears that they have negotiated with the view of not stopping there, but of proceeding to embody the result in a written instrument, it is presumed that, until they have all duly executed that instrument, the point has not been reached at which an agreement enforceable by law was to be the outcome. This presumption is one of intention and yields to definite expression of intention to the contrary if such exists".

[13] That passage was relied upon, and applied, by Lord Mackay of Clashfern, sitting in the Outer House, in the case of Comex Houlder Diving Limited v Colne Fishing Co Limited 1987 SC (HL) 85 in relation to a point in the case, which was not subject to further appeal, as to whether a draft agreement was binding, notwithstanding it had not been formally executed, as envisaged by the parties. Prior to citing the passage from the speech of Viscount Haldane in Gordon's Executors, Lord Mackay of Clashfern, at page 99, said that, as to what the Scots position, in relation to such a question was, he could not improve on a passage from the opinion of Lord President Cooper in the case of Stobo Limited v Morrisons (Gowans) Limited 1949 SC 184 where his Lordship said:

"The only rules of Scots law which it appears to me to be possible to extract from past decisions and general principles are that it is perfectly possible for the parties to an apparent contract to provide that there shall be locus poenitentiae until the terms of their agreement have been reduced to a formal contract; but that the bare fact that the parties to a completed agreement stipulate that it shall be embodied in a formal contract does not necessarily import that they are still in the stage of negotiation. In each instance it is a matter of the construction of the correspondence in the light of the facts, proved or averred, on which side of the borderline the case lies".

[14] I was also referred to the recent decision in the case of S. A Marie Brizzard et Rodger International v William Grant & Sons (1) 202 SLT 135.

[15] Having referred to the foregoing authorities, senior counsel for the defender then turned to consider the pursuer's pleadings. From those pleadings, it appeared that there had been a course of dealing between the parties which were constituted in a First Agreement, and then a Second Agreement and, as the pursuer would have it, a Third Agreement. The Second Agreement was a formally constituted document, which had been executed on behalf of both parties, prior to its commencement date. As had been seen, Section 13.3 of the Second Agreement provided any "amendment or modification or extension" of that agreement, to be effective, required to be in writing and signed by authorised officers of the parties. It was reasonable to assume that the parties would require no less in relation to a new agreement. The unexecuted "Third Agreement", provided for a testing clause and formal execution by officers of both parties. In the preamble to the unexecuted "Third Agreement" it was stated as follows: "NOW, THEREFORE, THE PARTIES HAVE AGREED AS FOLLOWS:". That language indicated that the parties' intention was not that the document, once executed, would simply be a document of record. It indicated, rather, that it was the execution of the document which was intended to produce the binding agreement between the parties. The first conclusion of the summons sought a declarator that:

"By e-mail (i) from the defender to the pursuer dated 30 January 2003 and (ii) from the pursuer to the defender dated 5 February 2003, a distribution agreement incorporating the whole terms of the document attached to the defenders' said e-mail to the pursuer of 30 January 2003 was concluded between the parties". The e-mail dated 30 January 2003, 6/2 of process, was from the defender's Mr Jeffray and was addressed to the pursuer's Mr Arghyrou. It stated, inter alia, "I am attaching for your approval the final draft of the Agreement which incorporates all the changes requested in your e-mail of 30 December subject to a small amendment in 10.3. Once you have confirmed that it is in order I shall send two copies for signature". The accompanying draft was the document, which the pursuer avers, contained the "Third Agreement". The reply to that e-mail from Mr Arghyrou to Mr Jeffray, 6/4 of process, is dated 5 February 2003 and stated, inter alia,

"Hope you are very well. Kindly note the following:

Contract

Many thanks for the above final draft which is OK with thanks from us. So pls send us two copies for signing."

[16] Senior counsel for the defender, contended that the terms of that correspondence, just quoted, indicated that parties did not contemplate that there would be a binding agreement, before the document was signed. Senior counsel particularly emphasised the use of the word "draft" and the request by the pursuer's representative for "two copies for signing". All of this indicated that those preparing the "Third Agreement" were following what had been done in the past by the parties, namely, that the written agreement between them required to be executed by them before it was binding upon either. Against all of that senior counsel asked what did the pursuer aver, which did indicate that the parties did intend to be bound prior to the execution of the agreement. In the first place, senior counsel for the defender submitted, once again, that the pursuer's averments were predicated on a false understanding of the Second Agreement namely, that it was to endure for five years and had overlooked the exit provision in that agreement. In Article 3 of condescendence the pursuer made averments regarding an e-mail dated 2 June 2003 from the defender's, Mr Jeffray. Those averments were to the effect that:

"Mr Jeffray requested the pursuer's consent to certain proposed amendments to 'the contract'. The requested amendments included inter alia the inclusion of a termination option and a break clause after three years. That request was consistent only with the existence of a concluded agreement between the parties as aforesaid".

[17] Senior counsel for the defender submitted that the terms of the e-mail, in question, were equally consistent with there being no binding "Third Agreement" as at that date. The full terms of the e-mail, 6/5 of process, were as follows:

"Subject Re: Contract

Chris,

It was good to see you on Thursday and I was glad that Calum and Duncan had an opportunity to explain their concerns about the changing face of the industry.

Our commitment to Karoulias and more particularly to you is absolute but I wonder if you would consider "tweaking" the contract to take into account the concerns referred to above.

The changes we would like to make are:

1. A termination option should you leave Karoulias (for whatever reason).

2. A termination option should the BF brands or Cutty Sark leave the Karoulias Portfolio.

3. Five year contract but with a three year break.

I can quickly get an amended version of the relevant pages for you to look at and once approved we would sign it forthwith.

With kind regards,

Stuart"

[18] Senior counsel for the defender pointed out that response from the pursuer to that e-mail was not referred to in the pursuer's averments, nor was it produced by the pursuer. The words "Sign it forthwith" endorsed the defender's position that the parties' intention was that the "Third Agreement" would only be final and binding when signed. The pursuers averments in Article 3 of condescendence, went on to state as follows:

"'the Third Agreement extended the scope of the pursuer's exclusive distribution rights to include Drambuie Cream Liqueur (EU Trade Mark Number CTM 820324) in addition to Drambuie Liqueur (EU Trade Mark Number CT M000167569). In terms of clauses 2.2 and 2.3 of the Third Agreement, the defender undertook to deliver the pursuer such quantities of Drambuie and Drambuie Cream as were ordered by the pursuer from time to time within the periods of time specified in the said clause 2.2".

[19] In so far as the pursuer may be relying on those averments to show that, post February 2003, the parties' trading position was governed by the "Third Agreement", as opposed to the provision of the Second Agreement, such an approach was misconceived. The Second Agreement provided for these possibilities by virtue of Sections 2.2, 2.3 and 2.5 thereof. The pursuer, in Article 3 goes on to make the following averments:

"Explained and averred that in the business of wine and spirit marketing and distribution, it is industry practice, if distribution agreements are to be renewed, for such renewal to take place prior to the end of the existing agreement, and for renewal to be for a period of at least three years. Continuity of marketing of the brand is thereby maintained. Accordingly, in the circumstances condescendenced upon, it would not be reasonable to infer that such a contract would not be binding until signed. On the contrary, it was well understood by both parties that the pursuer could not allow its relationship with the defender to be governed by tacit relocation and a short period of notice".

[20] In so far as those averments were designed to rebut the presumption, which the defender argued, would otherwise arise, to the effect that the parties did not intend to be bound until the "Third Agreement", was signed, senior counsel submitted that they did not avail the pursuer in that respect. Those averments were built on the misapprehension of the effect of the Second Agreement, which the defender had already highlighted, namely that it was an agreement which was to endure for five years, subject to tacit relocation, whereas it was intended to endure for an initial period of five years and to continue indefinitely thereafter until terminated by either of the parties giving six months' written notice. On that proper understanding of the Second Agreement, there was nothing to say that the defender, whatever the pursuer's position in the matter might have been, would have had a need, or a desire, to have the "Third Agreement" coming into effect prior to its execution, and thereby displacing the presumption which the defender contended for. The remainder of Article 3 contains the following averments:

"In accordance with such mutual understanding, at a meeting between the defender's directors and the said Mr Arghyrou on or about 27 September 2002, the defender confirmed its intention to maintain a long-term relationship between the parties. Sales volumes for the third agreement were discussed. The defender suggested that the pursuer might extend its distribution to other Balkan countries and participate in a joint venture for developing a new product, 'Drambite'. In January 2003, the pursuer took on ten new permanent sales staff. It would not have done so had its relationship with the defender been terminable within a short period. Following the pursuer's said e-mail of 5 February 2003, the defender's, Mr Kennedy sought the views of the pursuer on a new style of bottle which it was proposed to be introduced in or about April 2004. In April 2003, the pursuer produced to the defender a suggested marketing programme for Drambuie and Drambuie Cream for the period to June 2004. The marketing programme was then discussed at length between the parties. In May 2003, in the course of such discussions, the said Mr Kennedy of the defender indicated that the defender was prepared to commit the €285,000 per year over the next three years to advertising and promotion of Drambuie Cream. In or about May 2003, the defender also suggested that the pursuer participate in the development of new Drambuie products to be introduced during 2004/5. None of the said communications was consistent with a contract between the parties terminable on a period of notice of only six months. On the contrary, each was referable only to the existence of a binding agreement between the parties in terms of the Third Agreement. In the whole circumstances the objective intention of the parties was that from 5 February 2003 the Third Agreement should be binding upon the parties according to its terms and should take effect in accordance with such terms on 2003".

Put shortly, the submission of senior counsel for the defenders, in relation to these averments, was that they did not instruct a case of facts and circumstances, unequivocally referable to the parties' intentions having been that the "Third Agreement" would come into effect before it was signed. All the facts and circumstances there averred were quite consistent with the defender's position being that the Second Agreement continued until the end of December 2003 and that the parties had no binding agreement after that, whatever their expectations might have been at some earlier stage. In particular, the averments relating to matters which took place prior to the exchange of e-mails in January and February 2003 were not relevant in determining what the parties intentions were, as evidenced by that exchange of e-mails.

[21] In Article 4 of condescendence the pursuer makes averments regarding things it says it did in 2003, including incurring cost and the expense and entering into agreements with third parties, all of which they say they did on reliance of the "Third Agreement", and to the knowledge and with the consent of the defenders. Senior counsel for the defenders submitted that all these were activities which were equally referable to the continuing existence of the Second Agreement and were at least, to some extent, things which the pursuer was bound to perform, in any event, in terms of that agreement. In so far as these matters include things done by the pursuer after 11 June 2003 they were done by the pursuer, in the knowledge that the defender was terminating the Second Agreement, with effect from 31 December 2003. None of this, accordingly, supported a relevant case, for the pursuer, that the parties' intention in February 2003 was to be bound immediately by the terms of the "Third Agreement" before it was executed.

[22] Article 5 of condescendence simply sets out the pursuer's contention as to the legal position. Article 6 was concerned with what the pursuer said amounted to the alleged breach of the "Third Agreement" and what the alleged losses of the pursuer resulting therefrom were. Once again, there were no averments of facts or circumstances, contained therein, to rebut the presumption that the "Third Agreement" was not intended to be binding prior to its execution. Senior counsel for the defender renewed his motion to have the action dismissed as being irrelevant.

The Pursuer's Reply
[23] Senior counsel for the pursuer, in reply, sought to deal, in the first place, with the defender's contention that the action was irrelevant because the "Third Agreement", as relied upon by the pursuer, amounted to an "amendment or modification or extension" of the Second Agreement which, to be binding had, in terms of Section 13.3 of that agreement to be made in writing, and signed by duly authorised officers of both parties. That contention, it was submitted, arose from confused thinking as to what the "Third Agreement" was, on a proper legal analysis, and what its effects was. It failed to recognise the clear distinction, in law, between the amendment, modification or extension of an existing contract, on the one hand, and the creation of something new, which cancelled or superseded a previous contract, on the other. The defender's argument ignored, for example, the possibility of novation in law. Reference was made to McBryde on the law of Contract in Scotland 2^nd Ed. para 25.10. Section 14.1 of the Third Agreement expressly provided for the cancellation of the existing Second Agreement and its replacement with the Third. In principle, there was nothing to prevent the whole of the Second Agreement being superseded by an oral agreement. Senior counsel for the pursuer referred me to a New Zealand authority, in connection with the definition of the word "modification" - Soutar v Soutar 1921 NZL R716.

[24] Section 9.1 of the Second Agreement permitted either party to terminate on six months' written notice, the Second Agreement, after it had endured for five years, but it did not prevent the parties entering into a new agreement, at any time, which superseded the Second Agreement. The provisions of Section 13.3 of the Second Agreement applied to changes to the Second Agreement other than its complete replacement with a fresh agreement. In that respect it was complementary to the provisions of Section 13.2, which provided that the agreement was the entire agreement of the parties. For the foregoing reasons the defender's submissions relating to the effect of Section 13.3 of the Second Agreement, in relation to the pursuer's case were misconceived.

[25] Senior counsel for the pursuer then addressed the second chapter of the defender's attack on the relevancy of the pursuer's pleadings. There was, it was said, no dispute between the parties as to the relevant law to be applied. Reference was made to the speech of the Lord Chancellor in the case of Gordon's Executor at page 409, second column, where, his Lordship, quoting from the speech of Lord Wensleydale, in the earlier case of Ridgeway v Wharton said:

"If the original understanding is that the terms are to be reduced into writing, and that the parties are not to be bound until the terms are reduced into writing, then each party has a right to withdraw before the agreement is signed."

[26] That dictum showed that locus poenitentiae was the effect of an agreed condition that parties would not be bound, until the written agreement was executed. Senior counsel then referred to a further passage from the speech of the Lord Chancellor in Gordon's Executor, at page 410, where his Lordship referred to the case of Rossiter v Miller (1878, 3AC.1124) and the speech of Lord Chancellor Cairns, in that case, which senior counsel submitted seemed to suggest that such questions turned on whether or not the parties had reached an agreement, subject to a condition that until the agreement was embodied in a formally executed document no legal contract would arise. Senior counsel, however, accepted that such a condition need not be expressed, but might be implied. In any event, senior counsel said that was only one factor. What the House of Lords in Gordon's Executor was concerned to decide was whether or not the parties had truly come to a final agreement, or not. That approach was consistent with what Lord President Cooper said in Stobo v Morrisons and with what Lord Mackay of Clashfern had said in the Comex Houlder case. Senior counsel did not concede that, as senior counsel for the defender contended, such questions ultimately turned on a presumption. But taking the defender's position, for the sake of the argument, the question fell to be asked what was there, at 5 February 2003, which might lead to any such presumption being rebutted. At this point, in his submissions, senior counsel focused particularly on the pursuer's averments in Article 3 of condescendence beginning with the words "With reference to the defenders averments in Answer" and ending in the words "Short period of notice". Those averments, he submitted, set out the basis for any presumption being rebutted or, at least, providing a case that, as at 5 February 2003 the defender would not have thought it acceptable for the Third Agreement not to operate until signed. What, however, he recognised was required to be averred was a basis for establishing that both parties would not have intended the operation of the Third Agreement to be suspended until it was signed. In discussion with the Court, senior counsel for the pursuer did, it seemed, recognise that the averments which he relied upon, for that purpose, did not quite come up to what was required. Accordingly, at the commencement at the second day of the hearing, senior counsel for the pursuer sought leave to amend the averments in question to read as follows:

"With reference to the defenders averments in answer, it is admitted that the document which incorporated the terms of the Third Agreement was not subscribed on behalf either of the parties, under explanation that in the circumstances hereinbefore condescendenced upon, its terms were agreed in writings which was signed by both Mr Jeffray and Mr Arghyrou. Quoad ultra, the averments in answer are denied. Explained and averred that in the business of wine and spirit marketing and distribution, it is industry practice, that if distribution agreements are to be renewed, for such renewal to take place prior to the end or potential end of the existing agreement, and for renewal to be for a period of at least three years. Mutually advantageous continuity of the marketing of the brand is thereby maintained. Accordingly, in the circumstances, condescendenced upon, it would not be reasonable to infer that either party intended that such contract would not be binding until signed. On the contrary, it was well understood by both parties that neither would intend its relationship with the other to be governed by a six months rolling contract beyond the date on which agreement was reached on the terms of a new contract."

[27] These amended averments, it was submitted, made it clear that as at 5 February 2003 it would have been mutually advantageous for both parties, having regard to industry practice, and custom of trade, that the "Third Agreement" would be binding, even although not signed.

[28] Senior counsel for the defender opposed the motion to amend. He did so largely, if not entirely, on the basis that the proposed amendment did not meet the difficulties that arose from the pursuer's pleadings, as they stood. In particular it did not address the point that when the parties entered the Second Agreement they were apparently happy that that agreement should be terminable after five years, by either party giving six months' written notice. I decided to allow the pursuer to amend, as the proposed amendment did seem to me to bring the pursuer's case more into line with the position that senior counsel for the pursuer was seeking to advance and to focus it more precisely. Senior counsel for the defender indicated that he did not, at this stage, want time to answer the amendment and wished the hearing to proceed. He did, however, say that he wished to reserve his position regarding answering the amendment, at some time in the future.

[29] In resuming his submissions, senior counsel for the pursuer contended that the averments as now amended were not inconsistent with the terms of the Second Agreement regarding duration. The Third Agreement could be seen as an attempt to put right what might be seen as an aberration in the Second Agreement in so far as it provided for a six months' exit. Senior counsel for the pursuer then turned to the various items of correspondence, which had been referred to by senior counsel for the defender. In the first place he referred to 6/2 of process, the e-mail of 30 January 2003 and 6/4 of process, the e-mail of 5 February 2003. There were references in that correspondence not only to the "Third Agreement", but also to a joint venture project between the parties. Senior counsel for the pursuer then turned to the e-mail of 2 June 2003 from the defenders' Mr Jeffray to the pursuer's Mr Arghyrou. The content of that document, it was submitted, was more consistent with the pursuer's contention that the parties regarded themselves as being bound by the agreement, notwithstanding that it had not been executed, rather than the contrary position advanced by the defender. Senior counsel referred, in the first place, to the heading which is "Subject Re: Contract". The reference was not to "draft contract". Moreover, Mr Jeffray was requesting whether or not Mr Arghyrou would consider "tweaking" "the contract" in relation to certain matters. That request, as so stated, was consistent with the parties having regarded the "Third Agreement" as having been concluded and binding. The last sentence of the e-mail from Mr Jeffray, where he said that he could "Get an amended version of the relevant pages for you to look at and once approved we would sign it forthwith" was not inconsistent with the pursuer's approach. Section 14.3 of the Third Agreement required amendments to be in writing and signed. This all pointed towards the defender's representative proceeding on the basis that, at that date, there was an existing binding agreement between the parties in the shape of the "Third Agreement". Turing to the defender's termination letter of 11 June 2003, 6/6 of process, senior counsel drew the Court's attention to the contrast in tone and content between that communication from Mr Jeffray and the tone and content of his e-mail of the 2 June 2003, some nine days previously. There was an apparent contradiction between the two positions which called out for explanation. Senior counsel for the pursuer submitted that it was appropriate for the Court, in deciding what the parties' intentions had been, to have regard to what had occurred between 5 February and 11 June. He made this submission, with particular reference to what Viscount Haldane had to say in the case of Gordon's Executor at page 411-412 where his Lordship was to the following effect:

"But apart from such an expression of contrary intention is not legitimate to infer that the parties meant to stop short of what they have shewn that they set out to do, any more than it is legitimate to pick out letters from a continuous correspondence, and abstracting from the sequence and the character of the correspondence as whole, to fix the parties by particular letters, however apparently definite, at which they have not made not it plain that they intended to pause. In both cases the question is, What does the evidence disclose as the object aimed at, and what was a series of steps meant by those concerned to be preliminary to full finality in the process of binding themselves? To answer this question it is always necessary to look as a whole lot at the series of steps actually taken, and to avoid inferences based on anything short of the entirety of the process".

[30] Senior counsel for the pursuer contended that what Mr Jeffray said in his e-mail of 2 June 2003 was capable of amounting to a "definite expression of intention to the contrary" of the parties' agreement having been not to be bound until the formal agreement was executed. There was, moreover, no obvious practical reason, for the parties, in the circumstances, not wishing the "Third Agreement" to come into force until it was formally executed. The pursuer's averments, relating to what occurred after 5 February 2003, were there to provide corroboration of the inference the pursuer contended fell to be drawn as to the parties' intentions as at 5 February, and to show that the agreement was acted upon as binding after 5 February 2003. Senior counsel went on to submit that what the pursuer offered to prove was that, in the context, parties like the pursuer and the defender, would not have wished their relationship to be left, on a six months rolling contract basis, and, in particular, that the pursuer would not have carried out the various things referred to its pleadings, unless there had been an agreement that the Third Agreement governed the parties' relationship as from 5 February 2003. The pursuer was entitled to have the matter tested at proof.

Defender's Reply
[31] In reply senior counsel for the defender said that he sought dismissal of the action in its entirety. He did not have a subsidiary position that certain averments should be deleted. He reverted to the terms of 6/5 of process and contended, again, that the wording was supportive of the need for the "Third Agreement" to be signed before it became binding. As far as the amended averments of the pursuer, relied upon so heavily by senior counsel for the pursuer, were concerned, they simply did not properly recognise the significance, and weight, of the presumption, referred to by Viscount Haldane in his speech in Gordon's Eexecutor and, even if these averments were proved, they would not be sufficient to rebut that presumption. The defender's motions for dismissal was renewed.

Decision
[32] Having considered the arguments put to me, I am satisfied that I cannot reach a concluded view on the issue debated before me without enquiry into the facts and that the pursuer has averred sufficient to allow it to have a proof before answer. As has been seen, the defender's argument fell into two parts. I am entirely satisfied that the first part of the argument, as advanced by senior counsel for the defender, was entirely misconceived for the reasons advanced by senior counsel for the pursuer as I have set them out above. I need say very little more about it. The contention that the new "Third Agreement" amounted to an "amendment or modification or extension" of the Second Agreement involved, in my judgment, a misuse of language and, as senior counsel for the pursuer put it, a failure in proper legal analysis. What was being discussed, between the parties, in the correspondence of January and February 2003, was not the modification of the existing Second Agreement, but a complete new agreement to supersede it. In that situation, Section 13.3 of the Second Agreement had no part to play. The pursuer's case is, therefore, in my judgment, not irrelevant because of any failure by the parties to comply with the provision of the clause 13.3 of the Second Agreement.

[33] The second part of the defenders' attack on the relevancy of the pursuer's is a different matter. It does, in my judgment, raise a formidable question over the pursuer's case. In approaching that question, however, it is, in my judgment, important to remind oneself of first principles in this branch of the law. The law of contract is concerned with concluded agreements between parties, which are given legal effect. There is no requirement, in the law, that a concluded agreement, of the sort upon which the pursuer relies on the present case, should be in writing, far less that any such writing should be signed, or executed in some other prescribed way. Absent any such requirement by the law, what the Court is looking for is whether or not the parties have reached finality in their agreement. The question is whether or not the parties have passed beyond negotiation and have a concluded agreement. They may, of course, themselves, legislate that, whatever the appearance may be as to the finality, neither party will be bound, in law, until a certain condition is fulfilled, such as that their agreement should be embodied in a particular form, and/or that it should formalised by signature and/or witnessed, but as, in most questions in the law of contract, the primary focus is on the parties' intentions. What I have just said, appears to me, to be entirely in accordance with what Lord President Cooper had to say in Stobo Limited v Morrison Gowans at page 192 in the passage above.

[34] One of the authorities relied upon by Lord President Cooper was the case of Rossiter v Miller (1878) 3AC 1124. That was a case, which was referred to, and relied upon, also by the House of Lords in Gordon's Executor. In that case Lord Chancellor Cairns, at p.1138, referred to the speech of Lord Westbury, in the previous case of Chinnock v The Marchioness of Ely (De. G. J. & S. 638). At page 645 of his speech in the case of Chinnock Lord Westbury said:

"I entirely accept the doctrine contended for by the Plaintiff's counsel, and for which they cited the cases of Fowle v Freeman, Kennedy v Lee and Thoms v Dering, which establishes that if there had been a final agreement, and the terms of it are evidenced in a manner to satisfy the Statute of Frauds, the agreement shall be binding, although the parties may have declared that the writing is to serve only as instructions for a formal agreement, and although it may be an express term that a formal agreement shall be prepared and signed by the parties. As soon as the fact is established of the final mutual assent of the parties to certain terms, and those terms are evidenced by any writing signed by the party to be charged or his agent lawfully authorised, there exists all the materials which this Court requires to make a legally binding contract".

[35] At page 1150, in the same case, Lord O'Hagan, in referring to the particular circumstances of this case said:

"The correspondence gives no colour to the suggestion that contract was not final, and was not considered to be final by all the parties to it, because the formal agreement embodying its already settled terms had not been furnished. That suggestion was, in my judgment, an afterthought and a pretence prompted by mere ingenuity, although the binding character of the bargain had been confirmed on every side, to evade the enforcement of its obligations".

[36] In a passage from the speech of Lord Blackburn in Rossiter (relied upon by the Lord Chancellor in Gordon's Executor) his Lordship at page 1151, said as follows:

"I quite agree with the Lord Justices that (wholly independent of the Statute of Frauds) it is a necessary part of the Plaintiff's case to shew that the two parties had come to a final and complete agreement, for, if not, there was no contract. So long as they are only in negotiations either party may retract; and though the parties may have agreed that in all the cardinal points of the intended contract, yet, if some particulars essential to the agreement still remain to be settled afterwards, there is no contract. The parties, in such a case, are still only in negotiation. But the mere fact that the parties have expressly stipulated that there shall afterwards be a formal agreement prepared, embodying the terms, which will be signed by the parties, does not, by itself, shew that they continue merely in negotiation. It is a matter to be taken into account in construing the evidence and determining whether the parties have really come to a final agreement or not. But as soon as the fact is established of the final mutual assent of the parties so that those who draw up the formal agreement have not the power to vary the terms already settled, I think the contract is completed".

[37] As has been seen, senior counsel for the defender, in the present case, relied heavily on the reference by Viscount Haldane in the case of Gordon' s Executor to the existence of a presumption. I have not, myself, been able to trace any further reference, in the relevant authorities, where questions of this kind are said to be determined always on the basis of a presumption or presumptions. It seems to me that the existence of any presumption may depend on the language and actings of the parties in the case in question (I do, however, observe that in McBryde on the Law of Contract (2^nd Ed.) at para 5.44, under reference to Viscount Haldane's speech in Gordon's Executor, Comex Houlder Diving Limited and certain New Zealand Authorities, it is stated: "The principle is that there is a rebuttable presumption that parties were waiting for the duly executed instrument before binding themselves").

[38] In any event, even if there is room for any presumption arising in this case, I am not satisfied that I can decide, by simply referring to the terms of the e-mails, numbers 6/2 and 6/4 of process and the terms of the Second Agreement and the "Third Agreement", that as at 5 February 2003, and thereafter, to use the words of Lord President Cooper the parties were "still in the stage of negotiation" as regards the "Third Agreement". It appears to me that it will be necessary for the Court to hear evidence to enable it to construe the correspondence, in the context, and to decide "which side of the borderline the case lies", as Lord President Cooper put it. I am further persuaded that this is so, having regard to two factors. The first is that the unsigned document, which was passing between the parties no. 6/3 of process, gives all the appearance of being complete in its terms. In this case the primary position of the defender was not, as I understand it, that it was necessarily incomplete as to its terms but that its enforcement was suspended until it was executed. That may distinguish this case from some of the other cases where the stage had not been reached where the "agreement" into had been put into final formal expression (though unsigned). The second factor is that the relationship between the parties went back a very long way and appears to have been a successful and productive one for both of them. It might at least be questionable as to whether, in such a case, as opposed to a case where the parties were contracting together for the first time, finality of the agreement between them, would turn on the mere fact of whether or not the "Third Agreement" had been formally executed. Even if matters are approached, as senior counsel for the defender, argued for, on the basis of a rebuttable presumption, arising from the terms of the correspondence of January and February 2003, and from provisions of the Second Agreement and the "Third Agreement", I am satisfied that the pursuer, in the amended form of its pleadings, has averred sufficient facts and circumstances to entitle it to a proof to seek to rebut any such presumption.

[39] Senior counsel for the defender, at the close of his submissions, asked the Court that, in the event that it was not persuaded that case should be dismissed, it should have the case put out By Order to give him an opportunity to address any consequences which might arise from the pursuer's amendment of its pleadings during the hearing. I am prepared to accede to that request and shall put the case out By Order.

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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> W S Karoulias Sa v Drambuie Liqueur Company [2004] ScotCS 189 (30 July 2004) URL: http://www.bailii.org/scot/cases/ScotCS/2004/189.html Cite as: [2004] ScotCS 189