L Schuler AG v Wickman Machine Tools Ltd [1973] UKHL 2 (04 April 1973)

L. SCHULER A.G.

v

WICKMAN MACHINE TOOL SALES LTD.

Lord Reid

MY LORDS,

The Appellants are a German company which manufactures machine tools
and other engineering products. The Respondents are a selling organisation.
On 1st May, 1963, they entered into an elaborate “distributorship agree-
” ment” under which the Appellants (whom I shall call Schuler) granted
to the Respondents (called Sales in the agreement but whom I shall call
Wickman) the sole right to sell Schuler products in territory which included
the United Kingdom. These products included ” panel presses” defined
in clause 2 and general products. The panel presses are large machine tools
used by motor manufacturers. Wickman were to act as agents for Schuler in
selling the panel presses but were to purchase and re-sell the general products.
Wickman’s obligation with regard to the promotion of sales of Schuler
products is contained in clauses 7 and 12(6) which are in the following terms:

” 7. Promotion by Sales

” (a) Subject to Clause 17 Sales will use its best endeavours to promote
” and extend the sale of Schuler products in the Territory.

” (b) It shall be a condition of this Agreement that: —

” (i) Sales shall send its representatives to visit the six firms whose
” names are listed in the Schedule hereto at least once in every week for
” the purpose of soliciting orders for panel presses ;

” (ii) that the same representative shall visit each firm on each occa-
” sion unless there are unavoidable reasons preventing the visit being
” made by that representative in which case the visit shall be made
” by an alternate representative and Sales will ensure that such a visit
” is always made by the same alternate representative.

” Sales agrees to inform Schuler of the names of the representatives and
” alternate representatives instructed to make the visits required by this
“Clause.” . . .

” 12(b) Sales undertakes, at its expense, to look after Schuler’s interests
” carefully and will visit Schuler customers regularly, particularly those
” customers principally in the motor car and electrical industries whose names
” are set out on the list attached hereto and initialled by the parties hereto
” and will give all possible technical advice to customers.”

The six firms referred to in clause 7 are six of the largest motor manu-
facturers in this country. The agreement was to last until the end of 1967
so that clause 7(b)(i) required Wickman to make a total of some 1,400
visits during the period of the agreement. Wickman failed in their obliga-
tion. At first there were fairly extensive failures to make these visits. Then
there were negotiations with a view to improving the position and Schuler
have been held to have waived any right arising out of those failures. There-
after there was an improvement but there were still a considerable number
of failures.

After some correspondence Schuler wrote to Wickman in October, 1964.
terminating the agreement on the ground that failure to fulfill their obliga-
tion for weekly visits to the six firms entitled Schuler to treat that failure as
a repudiation of the agreement by Wickman. In accordance with clause 19
of the agreement this question was referred to arbitration. In spite of the
apparently simple and limited nature of the question in dispute, proceedings
before the Arbitrator were elaborate and protracted. Ultimately the
Arbitrator issued his award in the form of a Special Case on 6th October,
1969. He held that Schuler were not entitled to terminate the agreement.
This finding was reversed by Mocatta J. but restored by the Court of Appeal.

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In order to explain the contention of the parties, I must now set out
clause 11 of the agreement.

“11. Duration of Agreement

” (a) This Agreement and the rights granted hereunder to Sales shall
” commence on the First day of May 1963 and shall continue in force (unless
” previously determined as hereinafter provided) until the 31st day of Decem-
” ber 1967 and thereafter unless and until determined by either party upon
” giving to the other not less than 12 months’ notice in writing to that effect
” expiring on the said 31st day of December 1967 or any subsequent anniver-
” sary thereof PROVIDED that Schuler or Sales may by notice in writing
” to the other determine this Agreement forthwith if: —

” (i) the other shall have committed a material breach of its obliga-
” tions hereunder and shall have failed to remedy the same within 60
” days of being required in writing so to do or

” (ii) the other shall cease to carry on business or shall enter into
” liquidation (other than a members’ voluntary liquidation for the
” purposes of reconstruction or amalgamation) or shall suffer the appoint-
” ment of a Receiver of the whole or a material part of its undertaking;

” and PROVIDED FURTHER that Schuler may by notice determine this
” Agreement forthwith if Sales shall cease to be a wholly-owned subsidiary
” of Wickman Limited.

” (b) The termination of this Agreement shall be without prejudice to any
” rights or liabilities accrued due prior to the date of termination and the
” terms contained herein as to discount commission or otherwise will apply
” to any orders placed by Sales with Schuler and accepted by Schuler before
” such termination.”

Wickman’s main contention is that Schuler were only entitled to determine
the agreement for the reasons and in the manner provided in clause 11.
Schuler, on the other hand, contend that the terms of clause 7 are decisive in
their favour: they say that ” It shall be a condition of this agreement” in
clause 7(b) means that any breach of clause 7(b)(i) or 7(b)(ii) entitles them
forthwith to terminate the agreement. So as there were admittedly breaches
of clause 7(b)(i) which were not waived they were entitled to terminate the
contract.

1 think it right first to consider the meaning of clause 11 because, if
Wickman’s contention with regard to this is right, then clause 7 must be
construed in light of the provisions of clause 11. Clause 11 expressly provides
that the agreement ” shall continue in force (unless previously determined as
” hereinafter provided) until ” 31st December, 1967. That appears to imply
the corollary that the agreement shall not be determined before that date in
any other way than as provided in clause 11. It is argued for Schuler that
those words cannot have been intended to have that implication. In the first
place Schuler say that anticipatory breach cannot be brought within the
scope of clause 11 and the parties cannot have intended to exclude any
remedy for an anticipatory breach. And, secondly, they say that clause 11
fails to provide any remedy for an irremediable breach however fundamental
such breach might be.

There is much force in this criticism. But on any view the interrelation and
consequences of the various provisions of this agreement are so ill-thought
out that I am not disposed to discard the natural meaning of the words
which I have quoted merely because giving to them their natural meaning
implies that the draftsman has forgotten something which a better draftsman
would have remembered. If the terms of clause 11 are wide enough to apply
to breaches of clause 7 then I am inclined to hold that clause 7 must be read
subject to the provisions of clause 11.

It appears to me that clause 11(a)(i) is intended to apply to all material
breaches of the agreement which are capable of being remedied. The question
then is what is meant in this context by the word ” remedy “. It could mean
obviate or nullify the effect of a breach so that any damage already done is in
some way made good. Or it could mean cure so that matters are put right

3

for the future. I think that the latter is the more natural meaning. The word
is commonly used in connection with diseases or ailments and they would
normally be said to be remedied if they were cured although no cure can
remove the past effect or result of the disease before the cure took place. And
in general it can only be in a rare case that any remedy of something that has
gone wrong in the performance of a continuing positive obligation will, in
addition to putting it right for the future, remove or nullify damage already
incurred before the remedy was applied. To restrict the meaning of remedy
to cases where all damage past and future can be put right would leave hardly
any scope at all for this clause. On the other hand, there are cases where
it would seem a misuse of language to say that a breach can be remedied.
For example, a breach of clause 14 by disclosure of confidential information
could not be said to be remedied by a promise not to do it again.

So the question is whether a breach of Wickman’s obligation under clause
7(b)(i) is capable of being remedied within the meaning of this agreement.
On the one hand, failure to make one particular visit might have irremediable
consequences, e.g., a valuable order might have been lost when making that
visit would have obtained it. But looking at the position broadly I incline
to the view that breaches of this obligation should be held to be capable of
remedy within the meaning of clause 7. Each firm had to be visited more
than 200 times. If one visit is missed I think that one would normally say
that making arrangements to prevent a recurrence of that breach would
remedy the breach. If that is right and if clause 11 is intended to have general
application then clause 7 must be read so that a breach of clause 7(b) (i) does
not give to Schuler a right to rescind but only to require the breach to be
remedied within 60 days under clause 11 (a)(i)I do not feel at all confident
that this is the true view but I would adopt it unless the provisions of clause 7
point strongly in the opposite direction, so I turn to clause 7.

Clause 7 begins with the general requirement that Wickman shall ” use its
” best endeavours ” to promote sales of Schuler products. Then there is in
clause 7(b)(i) specification of those best endeavours with regard to panel
presses, and in clause 12(b) a much more general statement of what Wickman
must do with regard to other Schuler products. This intention to impose a
stricter obligation with regard to panel presses is borne out by the use of
the word ” condition ” in clause 7(b). I cannot accept Wickman’s argument
that conditions here merely means term. It must be intended to emphasise
the importance of the obligations in sub-clauses (b)(i) and (b)(ii). But what is
the extent of that emphasis?

Schuler maintains that the word ” condition ” has now acquired a precise
legal meaning ; that, particularly since the enactment of the Sale of Goods
Act, 1893, its recognised meaning in English law is a term of a contract any
breach of which by one party gives to the other party an immediate right to
rescind the whole contract. Undoubtedly the word is frequently used in
that sense. There may, indeed, be some presumption that in a formal legal
document it has that meaning. But it is frequenly used with a less stringent
meaning. One is familiar with printed ” Conditions of Sale ” incorporated
into a contract, and with the words ” For conditions see back ” printed on
the ticket. There it simply means that the ” conditions ” are terms of the
contract.

In the ordinary use of the English language ” condition ” has many mean-
ings, some of which have nothing to do with agreements. In connection
with an agreement it may mean a pre-condition: something which must
happen or be done before the agreement can take effect. Or it may mean
some state of affairs which must continue to exist if the agreement is to
remain in force. The legal meaning on which Schuler relies is, I think, one
which would not occur to a layman ; a condition in that sense is not some-
thing which has an automatic effect. It is a term the breach of which by
one party gives to the other an option either to terminate the contract or to
let the contract proceed and, if he so desires, sue for damages for the breach.

Sometimes a breach of a term gives that option to the aggrieved party
because it is of a fundamental character going to the root of the contract,
sometimes it gives that option because the parties have chosen to stipulate

4

that it shall have that effect. Blackburn J. said in Bettini v. Gye (1875) L.R.
1 Q.B.D. 183: “Parties may think some matter, apparently of very little
” importance, essential; and if they sufficiently express an intention to make
” the literal fulfilment of such a thing a condition precedent, it will be one.”

In the present case it is not contended that Wickman’s failures to make
visits amounted in themselves to fundamental breaches. What is contended
is that the terms of clause 7 ” sufficiently express an intention ” to make
any breach, however small, of the obligation to make visits a condition so
that any such breach shall entitle Schuler to rescind the whole contract if
they so desire.

Schuler maintains that the use of the word ” condition ” is in itself enough
to establish this intention. No doubt some words used by lawyers do have a
rigid inflexible meaning. But we must remember that we are seeking to
discover intention as disclosed by the contract as a whole. Use of the word
” condition ” is an indication—even a strong indication—of such an intention
but it is by no means conclusive.

The fact that a particular construction leads to a very unreasonable result
must be a relevant consideration. The more unreasonable the result the
more unlikely it is that the parties can have intended it, and if they do intend
it the more necessary it is that they shall make that intention abundantly
clear.

Clause 7(b) requires that over a long period each of the six firms shall be
visited every week by one or other of two named representatives. It makes
no provision for Wickman being entitled to substitute others even on the
death or retirement of one of the named representatives. Even if one could
imply some right to do this, it makes no provision for both representatives
being ill during a particular week. And it makes no provision for the
possibility that one or other of the firms may tell Wickman that they cannot
receive Wickman’s representative during a particular week. So if the parties
gave any thought to the matter at all they must have realised the probability
that in a few cases out of the 1,400 required visits a visit as stipulated would
be impossible. But if Schuler’s contention is right failure to make even one
visit entitle them to terminate the contract however blameless Wickman
might be.

This is so unreasonable that it must make me search for some other
possible meaning of the contract. If none can be found then Wickman
must suffer the consequences. But only if that is the only possible
interpretation.

If I have to construe clause 7 standing by itself then I do find difficulty
in reaching any other interpretation. But if clause 7 must be read with
clause 11 the difficulty disappears. The word ” condition ” would make any
breach of clause 7(b), however excusable, a material breach. That would
then entitle Schuler to give notice under clause 11(a)(i) requiring the breach
to be remedied. There would be no point in giving such a notice if Wickman
were clearly not in fault but if it were given Wickman would have no
difficulty in shewing that the breach had been remedied. If Wickman were
at fault then on receiving such a notice they would have to amend their
system so that they could shew that the breach had been remedied. If they
did not do that within the period of the notice then Schuler would be
entitled to rescind.

In my view, that is a possible and reasonable construction of the contract
and I would therefore adopt it. The contract is so obscure that I can
have no confidence that this is its true meaning but for the reasons which I
have given I think that it is the preferable construction. It follows that
Schuler was not entitled to rescind the contract as it purported to do. So I
would dismiss this appeal.

I must add some observations about a matter which was fully argued
before your Lordships. The majority of the Court of Appeal were influenced
by a consideration of actings subsequent to the making of the contract.
In my view, this was inconsistent with the decision of this House in Whit-
worth 
v. Miller [1970] A.C. 583. We were asked by the Respondent to

5

reconsider that decision on this point and I have done so. As a result I see
no reason to change the view which I expressed in that case. It was
decided in Watcham v. A.G. of East Africa Protectorate [1919] AC 533
that in deciding the scope of an ambiguous title to land it was proper
to have regard to subsequent actings and there are other authorities for
that view. There may be special reasons for construing a title to land in
light of subsequent possession had under it but I find it unnecessary to
consider that question. Otherwise I find no substantial support in the
authorities for any general principle permitting subsequent actings of the
parties to a contract to be used as throwing light on its meaning. I would
therefore reserve my opinion with regard to Watcham’s case but repeat my
view expressed in Whitworth with regard to the general principle.

Lord Morris of Borth-y-Gest

MY LORDS,

In his judgment in the Court of Appeal the learned Master of the Rolls
said that this is a case which turns on the meaning of the one word
” condition “. I think it does. But it turns upon the meaning of that one
word in its context and setting in a Distributorship Agreement made on the
1st May, 1963. The journey which brings to this House what is seemingly
so concentrated an issue has been one which has required the ascertainment
of facts and one in the course of which certain issues have by now fallen
by the wayside. The events of 1963 and 1964 were examined in an arbitra-
tion lasting seven days in 1969. The award of the learned Arbitrator raised
questions which were debated before the learned Judge for seven days in
January and February, 1971. Thereafter the issue which now remains (and
which has met with varying fortune) was debated for some five or six days
in the Court of Appeal.

The facts as found are all carefully recorded in the award of the learned
Arbitrator. I need only briefly refer to the evolution of the point of law
which now calls for decision.

The Award of the learned Arbitrator which was stated in the form of a
Special Case recorded that the agreed formulated question was as follows: –

” Whether on the facts found and the true construction of the documents
” Schuler were entitled by reason of breach by Wick man of their obligations
” under clause 7(b) of the distributorship agreement (a) to terminate that
” agreement under clause 11 (a) (i) (b) to repudiate that agreement in or about
” early November 1964″. The learned Arbitrator answered the question
in the negative. Clause 7 of the agreement is in the following terms:-

“7. Promotion by Sales

” (a) Subject to clause 17 Sales will use its best endeavours to promote
” and extend the sale of Schuler products in the Territory.

” (b) It shall be a condition of this Agreement that: –

” (i) Sales shall send its representatives to visit the six firms whose
” names are listed in the Schedule hereto at least once in every week
” for the purpose of soliciting orders for panel presses ;

” (ii) that the same representative shall visit each firm on each
“occasion unless there are unavoidable reasons preventing the visit
” being made by that representative in which case the visit shall be
” made by an alternate representative and Sales will ensure that such a
” visit is always made by the same alternate representative.
” Sales agrees to inform Schuler of the names of the representatives and
” alternate representatives instructed to make the visits required by this
” Clause.”

Clause 11 of the agreement is in the following terms: –

’11. Duration of Agreement

” (a) This Agreement and the rights granted hereunder to Sales shall
” commence on the First day of May 1963 and shall continue in force (unless

6

” previously determined as hereinafter provided) until the 31st day of
” December 1967 and thereafter unless and until determined by either party
” upon giving to the other not less than 12 months’ notice in writing to that
” effect expiring on the said 31st day of December 1967 or any subsequent
” anniversary thereof PROVIDED that Schuler or Sales may by notice in
” writing to the other determine this Agreement forthwith if: —

” (i) the other shall have committed a material breach of its obliga-
” tions hereunder and shall have failed to remedy the same within
” 60 days of being required in writing so to do or

” (ii) the other shall cease to carry on business or shall enter into
” liquidation (other than a members’ voluntary liquidation for the
” purposes of reconstruction or amalgamation) or shall suffer the
” appointment of a Receiver of the whole or a material part of its
” undertaking;

” and PROVIDED FURTHER that Schuler may by notice determine this
” Agreement forthwith if Sales shall cease to be a wholly-owned subsidiary
” of Wickman Limited.

” (b) The termination of this Agreement shall be without prepudice to
” any rights or liabilities accrued due prior to the date of termination and
” the terms contained herein as to discount commission or otherwise will
” apply to any orders placed by Sales with Schuler and accepted by Schuler
” before such termination.”

As will have been seen Wickman are called ” Sales ” the Distributorship
Agreement.

The question so formulated reflects the events which occurred. Schuler
wrote a letter to Wickman on the 27th October, 1964 (for convenience I
so refer to the parties). In the course of the letter Schuler wrote: —
” Furthermore, we have within the last few days received information which
” clearly indicates that you have also failed to fulfil your obligations under
” the Agreement to send the named representatives to visit each week the six
” scheduled companies. You are, of course, fully aware that this requirement
” was one to which fundamental importance was attached when the Agree-
” ment was entered into, and your failure to send the representatives on
” these visits was the subject of our complaint earlier this year. This obli-
” gation on your part is a condition of the Agreement and your failure to
” fulfil its terms (quite apart from any other grounds) entitled us to treat
” your failure as a repudiation of the Agreement on your part.

” Accordingly, we advise you that we regard the Distributorship Agree-
” ment between us of May 1, 1963 as now at an end and this letter is to
” give you notice to this effect.” Wickman replied (on the 2nd November,
1964) that they did not accept that they had failed to fulfil their obligations
or were in breach of the agreement of the 1st May, 1963, and that they
regarded Schuler’s letter as a wrongful repudiation of the agreement.
Pursuant to a clause in the agreement arbitration proceedings followed.
Wickman were Claimants. By their Points of Claim (delivered on the 2nd
July, 1965) they asserted that Schuler had by letters (including that of the
27th October) and by conduct repudiated the agreement and that they
(Wickman) had accepted the repudiation. By their Defence (served on the
1st January, 1966), Schuler admitted that by their letter of the 27th October,
1964, they had summarily terminated the agreement but they claimed that
they had been entitled to do so under the provisions of clause 11 (a) (i) by
reason of certain material breaches of the agreement which they alleged
had been committed by Wickman and which were pleaded: they were (1)
breaches of clause 7(a) and (2) breaches of Clause 7(b), the latter being
certain failures to send representatives to visit. By the Reply (served the
20th September, 1966), it was pleaded that if there had been breaches there
had been no proper notice under clause 11 (a) (i) and further that breaches had
been waived.

So the parties proceeded to a hearing before the learned Arbitrator in
July, 1969. It lasted seven days. Before it began Schuler gave notice that
they would ask the leave of the learned Arbitrator to amend their Defence.

7

Leave was given and to the Defence there was added the contention:
” Further or alternatively the Claimants having broken the express condition
” contained in the said clause 7(b) of the said Agreement, the Respondents
” were entitled to repudiate the said Agreement forthwith as they in fact
” did “. It is solely this contention that now remains. As I have stated,
the learned arbitrator answered the agreed question as to both limbs of it,
(a) and (b) in the negative. The learned Judge decided in agreement with the
learned Arbitrator that Schuler were not entitled to terminate the agreement
under clause ll(a)(i). That conclusion was not challenged in this House.
The learned Judge held, however, that, by reason of breach by Wickman of
obligations under clause 7(b), Schuler were entitled to repudiate the agree-
ment in or about early November, 1964. By a majority the Court of Appeal
in agreement with the learned Arbitrator held that Schuler were not so
entitled. So the question which arises is whether, quite independently of
clause 11, Schuler were entitled to treat the Agreement as at an end if
Wickman committed any breach of clause 7(b).

That there were certain breaches by Wickman of their obligations under
clause 7(b) has been found as a fact. Visits were not made to the extent
laid down by clause 7(b). It has been found that the failures prior to the
13th January, 1964, were waived. Thereafter there were certain failures
to visit which were not waived. It was held that those failures were not
” material ” breaches within the meaning of clause 11 (a). That finding of fact
of the learned Arbitrator has not been and I think could not have been
assailed. But there were some breaches. Between the 13th January, 1964,
and the 29th June, 1964, visits should in total have been 144: the visits
made were in total 125. Because of the Exhibition at Olympia no visits
were made between the 29th June, 1964, and the 13th July, 1964. The
learned Arbitrator held that there was no implication that visits in that
period were excused. From the 13th July to the 27th October the visits
should in total have been 96. The visits made were 87 in number.

The exact details of the failures to make the total requisite visits are not,
however, of special consequence inasmuch as Schuler say that had there
been but one failure to make one visit and indeed had such failure only
become known to them at a subsequent date they (Schuler) would have
had an absolute right to treat the contract as at an end. The word
” condition ” they say was used and so they say that the contract gave them
a right to ” repudiate ” it (though they prefer the word rescind) if at any time
they discovered that one single visit had been missed.

The contemplated first period of the agreement was from the beginning of
May, 1963, to the end of the year 1967: thereafter it was to continue
unless either party gave a year’s notice (which had to expire at the end of a
calendar year) to determine it. So the agreement might have continued in
operation for very many years but always, so Schuler say, with the power
in them to end it if they found that at any time one visit had not taken
place. Thus, in the contemplated first period there would have to be over
1,400 separate visits. If the agreement had continued and if, say in 1970,
Schuler had for some reason wished to terminate it without waiting to
give the contractual period of notice, the word ” condition ” would have
come to their aid if they had found out that, either in a recent or an earlier
period, one visit to one firm had not taken place or had been made by an
alternate representative when it could and should have been made by a
named representative.

Subject to any legal requirements business-men are free to make what
contracts they choose but unless the terms of their agreement are clear a
court will not be disposed to accept that they have agreed something utterly
fantastic. If it is clear what they have agreed a court will not be influenced
by any suggestion that they would have been wiser to have made a different
agreement. If a word employed by the parties in a contract can have only
one possible meaning then, unless any question of rectification arises, there
will be no problem. If a word either by reason of general acceptance or
by reason of judicial construction has come to have a particular meaning
then, if used in a business or technical document, it will often be reasonable

8

to suppose that the parties intended to use the word in its accepted sense.
But if a word in a contract may have more than one meaning then, in
interpreting the contract, a court will have to decide what was the intention
of the parties as revealed by or deduced from the terms and subject-matter
of their contract

Words are but the instruments by which meanings or intentions are
expressed. Often the same word has in differing contexts to do service
to convey differing meanings. In contracts of insurance an insurer will
often wish to stipulate that his acceptance of a risk is strictly contingent
upon the complete accuracy of some statement or representation that
has been made to him. The word ” warranty ” if used by a proposer or
an insured person in reference to such a statement or representation may
denote much more than a promise for the breach of which (if the statement
or representation is inaccurate) damages might be sought. So the word
” warranty” may be used to denote one of the meanings that can be
given to the word ” condition”. An insurer may provide that he will
only be liable if his insured does this or that: even if “this or that”
is not of special importance a court may decide that it was clearly the
intention of the parties that there should only be liability if this or
that had been done. If in the contract it is stated that such performance
is a condition precedent to a right to recover the intention of the parties
may be clearly revealed. (See London Guarantie Company v. Fearnley
5 App. Cas. 911).

If it is correct to say, as I think it is, that where there are problems
of the construction of an agreement the intention of the parties to it may
be collected from the terms of their agreement and from the subject-matter
to which it relates, then I doubt whether, save in so far as guidance on
principle is found, it is of much value (although it may be of much interest)
to consider how courts have interpreted various differing words in various
differing contracts. Nor is it of value to express either agreement or dis-
agreement with the conclusions reached in particular cases.

Just as the word ” warranty ” may have differing meanings according to
the context so may the word ” condition “. The words ” condition prece-
” dent” may have a specific meaning. But the ” conditions ” of a con-
tract may be no more than its terms or provisions. A condition of a
contract may according to the context be a term of it or it may denote
something to be satisfied before the contract comes into operation or it
may denote something basic to its continuing operation. The case of
Glaholm v. Hays, 2 Man. and G. 257 related to a charter party one term
of which provided that the vessel was to sail from England on or before
the 4th of February. The question which there arose was whether that
term was a condition precedent upon the non-compliance wherewith the
freighters were at liberty to throw up the charter. In giving judgment
Tindal C.J. said—” Whether a particular clause in a charter-party shall
” be held to be a condition, upon the non-performance of which by the
” one party, the other is at liberty to abandon the contract and consider
” it at an end; or whether it amounts to an agreement only, the breach
” whereof is to be recompensed by an action for damages, must depend upon
” the intention of the parties to be collected, in each particular case, from
” the terms of the agreement itself, and from the subject matter to which
” it relates “. ‘ It cannot depend,’ as Lord Ellenborough observes, ‘ on
” ‘any formal arrangement of the words, but (must depend) on the reason
” ‘ and sense of the thing as it is to be collected from the whole contract’:
” See Ritchie v. Anderson (10 East, 295.)” Looking at the language of
the charter and the variation of language in the term in question in that
case the Court considered that a distinction was intended and that while one
set of terms sounded in agreement the one in question sounded in con-
dition. Looking also at the subject-matter the Court considered that con-
struing the term as a condition precedent carried into effect the intention
of the parties.

When Mr. Bettini and Mr. Gye made an agreement providing that Mr.
Bettini should sing in concerts and operas, the engagement to begin on the
30th March, 1875. and to terminate on the 13th July, 1875, they included

9

a term under which Mr. Bettini agreed to be in London ” without fall”
at least six days before the 30th March for the purpose of rehearsals. He
did not arrive until the 28th March. It was held that the term was not a
condition precedent: it was an agreement a breach of which would not
justify a repudiation of the contract but would only be a cause of action
for compensation in damages. (See Bettini v. Gye, [1875] 1 Q.B.D. 183).
Resisting the temptation to examine numerous decisions concerned with the
interpretation of various clauses in their setting in various contracts I pass
to consider the meaning of clause 7(b) of the contract now under review.
Having regard to the scope and purpose of the Distributorship Agreement
and having regard to the words used and their context in the agreement—
how should the subclause be interpreted? Clause 7 is headed ” Promotion
” by Sales”. There is a considerable over-lap with clause 12 which is
headed ” Sales Obligations “.

Clause 12 is in the following terms: —

” 12. Sales’ Obligations

” (a) Sales will be responsible for importing, establishing prices, preparing
” quotations, issuing invoices, and giving after sales service to customers in
” respect of the general products.

” (b) Sales undertakes, at its expense, to look after Sender’s interests care-
” fully and will visit Schuler customers regularly, particularly those customers
” principally in the motor car and electrical industries whose names are set
” out on the list attached hereto and initialled by the parties hereto and will
” give all possible technical advice to customers.

” (c) Sales will carefully examine complaints from customers immediately
” to see whether they are justified and, as far as possible, will remove the
” cause of the complaints or at least clarify them. In all cases of complaints
” Sales will report to Schuler without delay and arrange with Schuler for a
” quick remedy.”

The central purpose of the agreement is I think set out in clause 7(a).
Wickman are to use their best endeavours to promote and extend the sale of
Schuler products in the Territory. That is a general and positive and all-
embracing obligation. Then in clause 7(b) is a more special or particularised
obligation. It relates to one part of the way in which Wickman must use
their ” best endeavours ” to promote sales (clause 7(a)) or ” look after
” Schuler’s interests carefully ” (clause 12(b)). It relates to panel presses.
Under clause 12(b) Wickman must visit Schuler customers ” regularly ” and
” particularly ” those named on a list. Clause 7(b) is even more specific.
Those on another list (the six in the Schedule) are to be visited at least once
a week and (unless there are unavoidable reasons) by the same named repre-
sentatives. But clause 7(b) unlike clause 12(b) has these words of intro-
duction—” It shall be a condition of this Agreement that “. The words are
there and clearly cannot be ignored. It is argued for Schuler that the
obligations which they introduce should be regarded as basic to the contract
or to its continuance from time to time or as having been elevated by the
parties to the status of being basic or fundamental. So much so that if, for
example, one of the six firms requested Wickman not to pay a visit in a
particular week and if Wickman would be using their best endeavours to
promote Schuler’s interests if they observed the customer’s wish it is said that
a failure to visit would nevertheless entitle Schuler to end the contract unless
Wickman had sought and secured prior absolution.

What, then, in the context is the meaning of the words—” It shall be
” condition “. Unless the words are recast and altered there must be some
addition. It is pointed out that the word ” condition ” is nowhere else to
be found in the agreement. The contrast is drawn with such words as
” undertakes ” or ” agrees to “. It is not suggested that the omitted word
should be ” the “. Had the draftsman used some such words as ” This agree-
” ment is conditional upon ” then it would seem likely that the provision
would have had higher pride of place than that of a second subclause:
furthermore, the wording that follows in 7(b) would have been different.

10

It is said that the indefinite article ” a ” should be added in clause 7(b). If
it is then clause7(b) reads to me like a provision or stiplation in detail as to
what Wickman in general were undertaking by clause 7(a) to do. The
general and over-riding obligation of doing all they could to promote Sales
as set out in clause 7(a) was particularised and made specific in the case of
panel presses (by clause 7(b)) by laying down the details as to how the
promotion of sales of panel presses was to be undertaken. In the event of
Wickman being remiss in their duties proof of this would be easy and
doubts would be removed if (in the case of panel presses) a precise pro-
gramme of operations had been agreed upon. I regard clause 7(b) as being
collateral to clause 7(a) and as prescribing the specific way in which Wickman
agreed that, as regards panel presses, their obligations under clause 7(a) were
to be performed. In the context the word ” condition ” denoted a term
or stipulation or provision which, being prescribed in detail, was made
specially prominent and significant. I do not take the view that before
the word ” condition ” can be construed in the technical sense of denoting
something fundamental to the continued operation of an agreement there
must in every case be found words expressly spelling out the consequences
of a breach, but I am left strongly with the impression that the agreement
now in question would have been differently worded had it been the intention
that one missed visit out of hundreds or thousands contracted for would
place the one party at the mercy of the other.

I conclude, therefore, that it was not the intention of the parties to give
to the word ” condition ” in clause 7(b) the meaning contended for by the
Appellants, viz.—” a stipulation such that any breach of it however slight
” would give the promisee a right to be quit of his future obligations and
” sue for damages “. The word denoted a stipulation which by reason of
its detail had special significance. I agree with the decision of the learned
Arbitrator whose finding was that—” It is an expression which indicates
” the importance attached by the parties to that stipulation when you come
” to consider under clause 11(a)(i) whether a party has committed a material
” breach of its obligations, such obligations including the obligation in
” clause 7(b) “. This view is, I think, re-inforced on a reading of clause 11.
The agreement was to continue in force for an initial period of over 4 1/2
years and thereafter unless and until determined by either party upon giving
to the other not less than a year’s notice in writing which had to expire either
on the 31st December, 1967, or on the 31st December in any later year. That
was so ” unless ” the contract was previously determined in one of certain
specified ways. Wickman could assert that Schuler had committed ” a
” material breach ” of one of its obligation and could in writing require
Schuler to remedy such breach within 60 days and if there was a failure
so to do Wickman could by notice in writing to Schuler forthwith ” deter-
” mine ” the agreement. Schuler could take corresponding action against
Wickman. As I have indicated Schuler asserted that Wickman committed
various material breaches of their obligations both under clause 7(a) and under
clause 7(b). So far as concerns the breaches under clause 7(b) subsequent
to the 13th January, 1964, it has been held (1) that none of the breaches was
material and (2) that no notice in respect of them was given under clause
11. These findings of fact are not challenged. As it has been found
that there were no ” material ” breaches the question does not arise whether,
had the breaches been material, a notice in writing would have been necessary
on the basis that the breaches were remediable or whether no such notice
would have been necessary on the basis that the breaches were not
remediable.

Other specific ways in which, under clause 11, either party might by
notice in writing determine the agreement were (1) if the other ceased to
carry on business or (2) if the other entered into liquidation (subject to an
exception) or (3) if the other suffered the appointment of a Receiver of the
whole or a material part of its undertaking. But in addition to all these ways
—Schuler could determine if Wickman ceased to be a wholly owned sub-
sidiary of another company. Finding provisions of such detail in both
clauses 7 and 11 I would have expected a specific mention in clause 11 of a

11

right in Schiller to determine the agreement on notice alone for any breach by
Wickman of their clause 7(b) obligations had it been the intention of the
parties that Schuler would have such a right. It follows that I cannot
accept the view that clause 11 has no application to clause 7. The parties
to the contract provided by clause 11 that there would be certain rights
of repudiation in the event of there being ” material” breaches of contract.
If it had been the intention of the parties to provide by clause 7(b) that
any breach of it (by any failure to visit) was to be so basic to the further
continuance of the contract as to entitle Schuler at once to treat the contract
as ended, then, such a breach would automatically and inevitably be a
” material ” breach and one which Schuler need give Wickman no oppor-
tunity to remedy. The fact that the detailed provisions of clause 11 do not
preserve what (on Schuler’s submissions) would have been Schuler’s undoubted
rights under clause 7(b) is a pointer which confirms my view as to the meaning
of clause 7(b).

For the reasons which I have given I would dismiss the appeal. I would,
however, not base or support my conclusion by having regard to the way in
which Schuler at certain times expressed themselves in reference to the
agreement. Nor is it of any moment that the issue in the litigation which
now survives was not at first pleaded. If the point taken on behalf of
Schuler is a valid one it cannot matter that for a period neither its existence
nor its strength was appreciated. It is said, however, that the way in which
the meaning of clause 7(b) was interpreted by Schuler during the currency
of the agreement made it plain that they did not consider themselves entitled
to end the agreement if there were breaches of the clause. It is said that
as the result of a meeting in November, 1963, Schuler proceeded on the
basis that there had been failures by Wickman to make weekly visits and
that that put them ” in breach of contract which, under the terms of the
” agreement must be righted in 60 days from notice thereof “. It is said
that in December 1963, Schuler were advised that if Wickman had failed
to fulfil their contractual obligations as to visits to the six companies they
(Wickman) were entitled under the contract to have 60 days within which
to remedy their breach. So it is said that it is shown that (from November,
1963) the parties understood or interpreted their contract in the sense that
a breach by Wickman of clause 7(b) would not entitle Schuler to rescind
as Schuler now contend that they were so entitled. But assuming that the
parties did so reveal their understanding of the matter, there being no
suggestion of a new agreement or of an estoppel, I do not think that the
task of the Court in interpreting the contract is assisted or is in any way
altered. There may or may not be special considerations in cases where
there have been operations in regard to land which have taken place
pursuant to or subsequent to some document of title or contract concerning
the land. That need not now be considered. But in a case such as the
present I see no reason to doubt the applicability or the authority of what
was said in Whitworth Street Estates (Manchester) Ltd. v. James Miller and
Partners Ltd. 
[1970] A.C. 583. If on the true construction of a contract a
right is given to a party, that right is not diminished because during some
period either the existence of the right or its full extent was not appreciated.

For the reasons which I have given I would dismiss the appeal.

Lord Wilberforce

MY LORDS,

With two qualifications, this case is one of interpretation of the written
agency or distributorship agreement between the Appellants and the
Respondents dated 1st May, 1963, in particular of clause 7(b) of that
agreement.

The first qualification involves the legal question whether this agreement
may be construed in the light of certain allegedly relevant subsequent
actions by the parties. Consideration of such actions undoubtedly influenced
the majority of the Court of Appeal to decide, as they did, in the Respond-
ent’s favour: and it is suggested, with much force, that, but for this,

12

Edmund Davies LJ. would have decided the case the other way. In my
opinion, subsequent actions ought not to have been taken into account.
The general rule is that extrinsic evidence is not admissible for the con-
struction of a written contract; the parties’ intentions must be ascertained,
on legal principles of construction, from the words they have used. It is
one and the same principle which excludes evidence of statements, or actions,
during negotiations, at the time of the contract, or subsequent to the contract,
any of which to the lay mind might at first sight seem to be proper to
receive. As to statements during negotiations this House has affirmed the
rule of exclusion in Prenn v. Simmonds ([1971] 3 All E.R. p. 237) as to
subsequent actions (unless evidencing a new agreement or as the basis of an
estoppel) in Whitworth Street Estates (Manchester) Ltd. v. James Miller and
Partners Ltd. 
[1970] A.C. 583.

There are of course exceptions. I attempt no exhaustive list of them.
In the case of ancient documents, contemporaneous or subsequent action
may be adduced in order to explain words whose contemporary meaning
may have become obscure. And evidence may be admitted of surrounding
circumstances or in order to explain technical expressions or to identify the
subject-matter of an agreement: or (an overlapping exception), to resolve
a latent ambiguity. But ambiguity in this context is not to be equated with
difficulty of construction, even difficulty to a point where judicial opinion as
to meaning has differed. This is, I venture to think, elementary law. On
this test there is certainly no ambiguity here.

The arguments used in order to induce us to depart from these settled
rules and to admit evidence of subsequent conduct generally in aid of
construction, were fragile. They were based first on the Privy Council
judgment in Watcham v. Attorney-General of East Africa Protectorate
[1919] AC 533 not, it was pointed out, cited in Whitworth’s case. But
there was no negligence by Counsel or incuria by their Lordships in omitting
to refer to a precedent which I had thought had long been recognised
to be nothing but the refuge of the desperate. Whether, in its own field,
namely, that of interpretation of deeds relating to real property by reference
to acts of possession, it retains any credibility in the face of powerful
judicial criticism is not before us. But in relation to the interpretation of
contracts or written documents generally I must deprecate its future
citation in English Courts as an authority. It should be unnecessary to
add that the well-known words of Lord St. Leonards (Attorney-General
v. Drummond 
1 Dr. & War. 353, 368) ” Tell me what you have done under
” such a deed and I will tell you what that deed means ” relate to ancient
instruments and it is an abuse of them to cite them in other applications.
Secondly, there were other authorities cited, Hillas v. Arcos 43 LI. L.R. 359
and Foley v. Classique Coaches, Ltd. [1934] 2 K.B. 1. But, with respect,
these are not in any way relevant to the present discussion, and the judg-
ment of Lawrence J. in Radio Pictures v. C.I.R. 22 T.C. 106, so far as it
bears on this point was disapproved in the Court of Appeal and in my
opinion was not correct in law.

In my opinion, therefore, the subsequent actings relied upon should have
been left entirely out of account: in saying this I must not be taken to
agree that the particular actings relied on are of any assistance whatever
towards one or other construction of the contract. Indeed if one were
to pursue the matter, the facts of the present case would be found to
illustrate, rather vividly, the dangers inherent in entertaining this class of
evidence at all.

The second legal issue which arises I would state in this way: whether
it is open to the parties to a contract, not being a contract for the sale of
goods, to use the word “condition” to introduce a term, breach of which
ipso facto entitles the other party to treat the contract at an end.

The proposition that this may be done has not been uncriticised. It is
said that this is contrary to modern trends which focus interest rather upon
the nature of the breach, allowing the innocent party to rescind or repudiate
whenever the breach is fundamental, whether the clause breached is called
a condition or not: that the affixing of the label “condition” cannot

13

pre-empt the right of the Court to estimate for itself the character of the
breach. Alternatively it is said that the result contended for can only be
achieved if the consequences of a breach of a ” condition ” (sc., that the other
party may rescind) are spelt out in the contract. In support of this line
of argument reliance is placed on the judgment of the Court of Appeal
in Hong Kong Fir Shipping Co. Ltd. v. Kawasaki Kisen Waisha Ltd. [1962]
2 Q.B. 26.

My Lords, this approach has something to commend it: it has academic
support. The use as a promissory term of ” condition ” is artificial, as is that
of ” warranty ” in some contexts. But in my opinion this use is now too
deeply embedded in English law to be uprooted by anything less than a
complete revision. I shall not trace the development of the term through
19th century cases, many of them decisions of Lord Blackburn, to the
present time: this has been well done by academic writers. I would only
add that the Hong Kong Fir case even if it could, did not reverse the trend.
What it did decide, and I do not think that this was anything new, was that
though a term (there a ” seaworthiness” term) was not a ” condition”
in the technical sense, it might still be a term breach of which if sufficiently
serious could go to the root of the contract. Nothing in the judgments as
I read them cast any doubt upon the meaning or effect of ” condition ”
where that word is technically used.

The alternative argument, in; my opinion, is equally precluded by
authority. It is not necessary for parties to a contract, when stipulating a
condition, to spell out the consequences of breach: these are inherent in the
” assumedly deliberate) use of the word. (Suisse Atlantique v. Rotter-
damche Kolen Centrale 
[1967] A.C. 361, 422 (per Lord Upjohn)).

It is upon this legal basis, as to which I venture to think that your Lord-
ships are agreed, that this contract must be construed. Does Clause 7(b)
amount to a ” condition ” or a ” term “? (to call it an important or material
term adds, with all respect, nothing but some intellectual assuagement). My
Lords, I am clear in my own mind that it is a condition, but your Lordships
take the contrary view. On a matter of construction of a particular docu-
ment, to develop the reasons for a minority opinion serves no purpose. I am
all the more happy to refrain from so doing because the judgments of
Mocatta J., Stephenson L.J., and indeed of Edmund Davies L.J., on construc-
tion, give me complete satisfaction and I could in any case add little of value
to their reasons. I would only add that, for my part, to call the clause
arbitrary, capricious or fantastic, or to introduce as a test of its validity the
ubiquitous reasonable man (I do not know whether he is English or German)
is to assume, contrary to the evidence, that both parties to this contract
adopted a standard of easygoing tolerance rather than one of aggressive,
insistent punctuality and efficiency. This is not an assumption I am prepared
to make, nor do I think myself entitled to impose the former standard upon
the parties if their words indicate, as they plainly do, the latter. I note
finally, that the result of treating the clause, so careful and specific in its
requirements as a term is, in effect, to deprive the Appellants of any remedy
in respect of admitted and by no means minimal breaches. The Arbitrator’s
finding that these breaches were not ” material ” was not, in my opinion,
justified in law in the face of the parties’ own characterisation of them in their
document: indeed the fact that he was able to do so, and so leave the Appel-
lants without remedy, argues strongly that the legal basis of his finding—
that clause 7(b) was merely a term—is unsound.

I would allow this appeal.

Lord Simon of Glaisdale

MY LORDS,

The decision in this appeal depends on the answer to two questions: first,
can ” subsequent conduct ” of the parties be relied on for the construction
of the Distributorship Agreement of 1st May, 1932? ; and, secondly, with or
without assistance from ” subsequent conduct ” (dependent on the answer to

14

the first question), was Wickmans’ breach of clause 7(b) of the agreement on
its proper construction such as to entitle Schulers to rely on it so as to
amount to a rescission of the agreement in November, 1964?

There is one general principle of law which is relevant to both questions.
This has been frequently stated, but it is most pungently expressed in Norton
on Deeds, 
1906, p. 43, though it applies to all written instruments:

” The question to be answered always is ‘ What is the meaning of
” what the parties have said? ‘ not’ What did the parties mean to say? ‘
“… it being a presumption juris et de jure . . . that the parties intended
” to say what they have said.”

It is, of course, always open to a party to claim rectification of an agreement
which has failed to express the common intention of the parties ; but, so long
as the agreement remains unrectified, the rule of construction is as stated
by Norton. It is, indeed, the only workable rule. In the instant case
no question of rectification arises.

Although, logically, the first question should be answered first, in the cir-
cumstances of the present case it is more convenient to consider the second
question first (i.e., whether the agreement can be construed adequately without
reference to subsequent conduct), and then to consider the first question
(i.e., whether subsequent conduct is available either to control, or to supply
inadequacies in, the primary tools of construction).

Construction independently of subsequent conduct

On this part of the case I agree so completely with what has been said by
my noble and learned friend, Lord Reid, that I do not attempt to cover any
ground which he has traversed.

The case finally turns on the meaning to be attached to the word ” condi-
tion ” in clause 7(b) read in the light of all the rest of the contract. Various
meanings of this word, both in popular usage and as a legal term of art,
have been debated before your Lordships. The agreement was intended to
have legal effect and was drawn up by lawyers. This raises a presumption
that the words in the contract are used in a sense that they bear as legal
terms of art, if they are reasonably capable of bearing such meaning in their
context (see Sydall v. Castings Ltd. [1967] 1 Q.B. 302). But this presumption is
rebuttable ; so that, even in a document drawn up by lawyers and intended
to have legal effect, a word capable of bearing meaning as a legal term of art
will be construed in a popular sense if the instrument shows that the parties
intended to use it in that sense. Most words in English are capable of a
number of meanings, either in popular usage or as legal terms of art or both.
In either category, prima facie they will be read in their most usual and
natural (or primary) sense. But this again is a rebuttable presumption ; so
that a word will be construed in a less usual or natural (or secondary) sense
if the instrument shows that it is intended in such sense. In the Distributorship
Agreement there is nothing to suggest that the word ” condition ” was used in
any of its popular senses or to displace the presumption that it was used as a
legal term of art in one or other of its senses.

The primary legal sense of ” condition ” appears from the judgment of
Fletcher Moulton L.J. (approved by your Lordships’ House [1911] A.C394)
in Wallis v. Pratt [1910] 2 K.B. 1003 at p. 1012:

” There are some [obligations] which go so directly to the substance
” of the contract or, in other words, are so essential to its very nature
” that their non-performance may fairly be considered by the other party
” as a substantial failure to perform the contract at all. On the other hand
” there are other obligations which, though they must be performed, are
” not so vital that a failure to perform them goes to the substance of the
” contract . . . later usage has consecrated the term ‘ condition’ to
” describe an obligation of the former class and ” ‘ warranty ‘ to describe
” an obligation of the latter class.”

It was argued on behalf of the respondents (e.g., Hong Kong Fir Co. v.
Kawasaki 
[1962] 2 QB 26), bear this primary meaning in the law of
contract. But the fact that it has now been made explicit that there lies

15

intermediate between conditions and warranties a large ” innominate ” class
of contractual terms (any breach of which does not give rise to a right in the
other party to terminate the contract, but only a material breach, immaterial
breaches merely giving rise, like breaches of warranty, to a right to claim
damages) does not involve in any way that ” condition” is no longer the
appropriate word to describe a contractual term any breach of which (by
express stipulation or by its innate nature in its context) gives rise to a right
in the other party to terminate the contract. The sense designated by Fletcher
Moulton L.J. is still, in my view, the primary meaning of ” condition ” as a
legal term of art. It is therefore, prima facie, in this sense that the word is
used in clause 7(b). This prima facie sense is reinforced by the fact that the
stipulation in clause 7(b) is the only one which starts ” It shall be a condition
. . .”. This is a further indication that ” condition ” here means something
more than ” contractual term “, which is unquestionably one of the senses
which it can bear as a legal term of art.

On the other hand, to read ” condition ” in clause 7(b) in what I regard
as its primary sense as a term of art produces, as my noble and learned friend,
Lord Reid, has shown, such absurd results that this cannot be the meaning
to be ascribed to it, provided that it is reasonably capable of some other
meaning. A secondary meaning of ” condition” as a term of art is
” contractual term “. But it must mean more than merely this in clause 7(b),
since this stipulation is singled out from all the other contractual terms to be
dubbed a ” condition “. I agree with my noble and learned friend that, in the
light of the rest of the contract, it means a contractual term breach of which
if unremedied (i.e., unrectified for the future, if capable of rectification) gives
Schulers the right to terminate the contract in accordance with clause 11.
It follows that I agree with the decision of the learned arbitrator and with the
conclusion of the majority of the Court of Appeal and would therefore dismiss
the appeal.

Construction by subsequent conduct

The majority of the Court of Appeal came to their conclusion in favour
of Wickmans by construing the agreement by reference to the subsequent
conduct of the parties thereunder. They recognised that it had been stated
by four of their Lordships who decided Whitworth Street Estates (Man-
chester) Ltd. 
v. James Miller & Partners Ltd. [1970] A.C. 583, that the
conduct of the parties under a contract is not available as an aid to con-
struction ; but held that this rule only applied when the instrument to be
construed is unambiguous, and that Watcham v. Attorney-General of The
East Africa Protectorate 
[1919] AC 533 (which was not cited in the
Whitworth Street Estates case) was authority entitling the court to have
recourse to subsequent conduct of the parties under this contract to resolve
the ambiguity that they descried therein. The Distribution Agreement is
not drafted with entire felicity, and therefore presents difficulties in con-
struction. But this is not the same as embodying an ambiguity. Agreeing
as I do with the interpretation of my noble and learned friend, Lord Reid,
I cannot on final resolution find that there is any ambiguity in the agreement.
Nevertheless, the question of the availability of subsequent conduct as an aid
to interpretation is an important one which ought not if possible to be left
in its present state of uncertainty ; and, since it was fully and carefully argued
before your Lordships, I do not feel that I would be justified in remaining
silent on it.

The Whitworth Street Estates case was concerned with a contract (con-
taining an arbitration clause) between an English and a Scots Company
which was to be performed in Scotland, but was silent as to whether the
contract (and the arbitration thereunder) was to be governed by English
or by Scots law. Disputes having arisen, an arbitration took place in
Scotland. The issue before the Court of Appeal and your Lordships’ House
was whether the arbiter could be required to state a case for the opinion of
the English High Court, which in turn depended on what was the curial law
of the arbitration. If the contract was to be governed by Scots law, that too
would be the curial law of the arbitration ; but it was argued that even if the

16

law of the contract were English the curial law of the arbitration was Scottish.
In the Court of Appeal ([1969] 1 W.L.R. 377) Lord Denning M.R. held that
the crucial question in determining what was the law governing the contract
was to ask: ” what is the system of law with which the transaction has the
” closest and most real connection? ” (p. 380 E). He concluded that that
was English law (p. 381 C/D). He went on (p. 381 D):

“Iam confirmed in this view by the subsequent conduct of the
” parties. This is always available to aid the interpretation of a contract
” and to find out its closest connections. On two occasions the parties
” seem to have assumed that the transaction was governed by English
” law “. Davies L.J. agreed (see especially p. 383 H). Widgery L.J.,
who also agreed that English was the proper law of the contract, said:
(pp. 383-384 D): ” To solve a problem such as arises in this case one
” looks first at the express terms of the contract to see whether that
” intention is there to be found. If it is not, then in my judgment the
” next step is to consider the conduct of the parties to see whether that
” conduct shows that a decision in regard to the proper law of the
” contract can be inferred from it. If the parties’ conduct shows that
” they have adopted a particular view with regard to the proper law,
” then it may be inferred that they have agreed that that law shall govern
” the contract accordingly.”

When the Whitworth Street Estates case came to your Lordships’ House
it was argued that the subsequent conduct of the parties could not be looked
at to determine what was the proper law of the contract (p. 590 F; contra
p. 594 C and F). Four of the five members of the Appellate Committee
dealt expressly with this matter, My noble and learned friend, Lord Reid,
said (p. 603 B/C—E/F):

” It has been assumed in the course of this case that it is proper, in
” determining what was the proper law, to have regard to actings of
” the parties after their contract had been made. Of course the actings
” of the parties (including any words which they used) may be sufficient
” to show that they made a new contract. If they made no agreement
” originally as to the proper law, such actings may show that they
” made an agreement about that at a later stage. Or if they did make such
” an agreement originally such actings may show that they later agreed
” to alter it. But with regard to actings of the parties between the date
” of the original contract and the date of Mr. Underwood’s appointment
” I did not understand it to be argued that they were sufficient to establish
” any new contract, and I think they clearly were not. As I understood
” him, counsel sought to use those actings to show that there was an
” agreement when the original contract was made that the proper law of
” that contract was to be the law of England. I must say that I had
” thought that it is now well settled that it is not legitimate to use as an
” aid in the construction of the contract anything which the parties
” said or did after it was made. Otherwise one might have the result
” that a contract meant one thing the day it was signed, but by reason
“of subsequent events meant something different a month or a year later.”

My noble and learned friend, Lord Hodson, said:

” I should add that I cannot assent to the view which seems to have
” found favour in the eyes of the Master of the Rolls and Widgery LJ.
” that as a matter of construction the contract can be construed not only
” in its surrounding circumstances but also by reference to the sub-
” sequent conduct of the parties “.

My noble and learned friend, Viscount Dilhorne, said (p. 611 D)

” I do not consider that one can properly have regard to the parties’
” conduct after the contract has been entered into when considering
” whether an inference can be drawn as to their intention when they
” entered into the contract, though subsequent conduct by one party
” may give rise to an estoppel.”

My noble and learned friend. Lord Wilberforce, said (pp. 614 H)

“… once it was seen that the parties had made no express choice

17

” of law, the correct course was to ascertain from all relevant contem-
” porary circumstances including, but not limited to, what the parties
” said or did at the time, what intention ought to be imputed to them
” on the formation of the contract. Unless it were to found an estoppel
” or a subsequent agreement, I do not think that subsequent conduct
” can be relevant to this question “.

It will be noticed that, except perhaps for Widgery L.J.’s, all these
pronouncements (both in the Court of Appeal in favour of there being a
rule whereby subsequent conduct is available as an aid to interpretation
and contra in your Lordships’ House) are perfectly general, none drawing
the distinction which was drawn by the majority of the Court of Appeal
in the instant case between ambiguous and unambiguous instruments. It
must therefore be determined, first, whether or not the Whitworth Street
Estates 
case was one where the instrument was ambiguous; secondly, if
not, whether the situation there was so closely analogous to an ambiguity
that it would be wrong to draw a distinction ; thirdly, whether what was said
on the matter in the Whitworth Street Estates case was part of the ratio
decidendi 
or obiter; and, fourthly, if the latter, whether it should nonetheless
be regarded as settling the law. It is convenient to consider together the first
and second and the third and fourth points respectively.

The problem posed by the Whitworth Street Estates case was that the
contract made no express provision on a matter which turned out to be
crucial, namely, whether English or Scots law governed the contract and
the arbitration. The only way of distinguishing such a situation from an
ambiguity would be to say that in a situation such as Whitworth the
difficulty facing the Court was that the contract was silent on a crucial
point, whereas in a case such as Watcham a patent ambiguity appeared on
the face of the instrument—i.e., to regard the former as a case where the
Court was invited to take account of subsequent conduct to add an absent
term, the latter as one where the Court was invited to take account of
subsequent conduct to determine which of two present but inconsistent terms
was to be preferred. But such a distinction would, in my view, merely be
to complicate the law and to introduce intolerable refinements. There was,
it is true, considerable older authority which suggested that, although
extrinsic evidence could be adduced to resolve ambiguity (though never
direct evidence of intention in the case of a patent ambiguity), it could not
be adduced to influence the interpretation of an unambiguous instrument
(see Norton p. 56 and ch. VI). The justification for the adduction of
extrinsic evidence to resolve an ambiguity must be that it might be the last
resort to save an instrument from being void for uncertainty. This type
of practical consideration is characteristically potent in shaping our law ;
but in this field its practical recommendation is, in my judgment, outweighed
by the inconveniences and anomalies involved. In particular, the distinction
between the admissibility of direct and circumstantial evidence of intention
seems to me to be quite unjustifiable in these days. And the distinctions
between patent ambiguities, latent ambiguities and equivocations as regards
admissibility of extrinsic evidence are based on outmoded and highly tech-
nical and artificial rules and introduce absurd refinements. What was said
in Whitworth should therefore, in my judgment, be taken to apply generally
to documentary construction, even when an ambiguity can be spelt out.

This brings me to consider how far what was said about this matter
in Whitworth was part of its ratio decidendi. Lord Reid held the contract
to be governed by Scots law; and he therefore did not find it necessary
to determine whether, if the proper law of contract were English, the
arbitration was nevertheless governed by Scots law. In order to arrive
at the conclusion that the law of the contract was Scottish, Lord Reid
had, in my view, necessarily to determine whether to take into account
the subsequent conduct of the parties which had been relied on by the
Court of Appeal in holding the law of the contract to be English. In other
words, what he said about the availability of subsequent conduct as an
aid to interpretation of contract was part of the ratio decidendi of his
judgment. It is true that, on strict analysis, what was said by Lord Hodson,18

Viscount Dilhorne and Lord Wilberforce cannot be regarded as a vital
step towards their conclusions; but, as I have already ventured to demon-
state, the point was directly in issue between the panties in your Lordships’
House. I am therefore firmly of opinion that what was said should be
regarded as settling the law on this point. I am reinforced in this opinion
because, in my view, Whitworth Street Estates was a correct decision on
the point for reasons additional to those given in the speeches. First,
subsequent conduct is of no greater probative value in the interpretation of
an instrument than prior negotiations or direct evidence of intention: it
might, indeed, be most misleading to let in subsequent conduct without
reference to these other matters. But Prenn v. Simmonds [1971] 3 All E.R.
237 gives convincing reasons why negotiations are not available as an aid
to construction; and it does not, and could not consistently with its reason-
ing, make any exception in the case of ambiguity. As for direct evidence
of intention, there is clear authority that this is not available in the case of
a patent ambiguity; and I have already ventured to submit to your Lord-
ships the undesirability of distinguishing between direct and circumstantial
evidence and between latent and patent ambiguities in this regard. Secondly,
subsequent conduct is equally referable to what the parties meant to say
as to the meaning of what they said ; and, as the citation from Norton shows,
it is only the latter which is relevant. Sir Edward Sugden’s frequently
quoted an epigrammatic dictum in Attorney General v. Drummond (1842)
1 Dr. & War. 353, 368, “… tell me what you have done under such
” a deed, and I will tell you what that deeds means ” really contains a
logical flaw: if you tell me what you have done under a deed, I can at best
tell you only what you think that deed means. Moreover, Sir Edward
Sugden was expressly dealing with ” ancient instruments”. I would add,
thirdly, that the practical difficulties involved in admitting subsequent con-
duct as an aid to interpretation are only marginally, if at all, less than are
involved in admitting evidence of prior negotiations.

In their printed case the respondents invited your Lordships to depart
from the decision in Whitworth Street Estates if it could not be distinguished.
But nothing was laid before your Lordships which would bring this case
within the Lord Chancellor’s statement of the 26th July, 1966, which sets
the bounds of your Lordships to depart from a previous decision of your
Lordships’ House. The fact that even a relevant authority is not cited is
no ground in itself for departure from precedent in your Lordships’ House.

Watcham’s case was already considerably weakened as a persuasive autho-
rity by what was said about it in Galsberg v. Storr [1950] 1 K.B. 107, 114
and Sussex Caravans Park Limited v. Richardson [1961] 1 W.L.R. 561, 568.
In the light of the Whitworth Street Estates case it can no longer be regarded
as authority for the proposition for which it was cited in the Court of
Appeal in the instant case. It is possible that the actual decision can be
justified, as can certainly many of the authorities on which it purports to
found, by well recognised exceptions to the rule against adduction of ex-
trinsic evidence to interpret an instrument. These are authoritatively stated
by Parke B. in Shore v. Wilson (1842) 9 CI. & Fin. 355 at pp. 555, 556:

” In the first place, there is no doubt that not only where the language
” of the instrument is such as the Court does not understand, it is
” competent to receive evidence of the proper meaning of that language,
” as when it is written in a foreign tongue; but it is also competent,
” where technical words or peculiar terms, or indeed any expressions
” are used, which at the time the instrument was written had acquired
” an appropriate meaning, either generally or by local usage, or amongst
” particular classes. . . . This description of evidence is admissible,
” in order to enable the Court to understand the meaning of the words
” contained in the instrument itself, by themselves, and without refer-
” ence to the extrinsic facts on which the instrument is intended to
” operate. For the purpose of applying the instrument to the facts,
” and determining what passes by it, and who take an interest under
” it, a second description of evidence is admissible, viz. every material
” fact that will enable the Court to identify the person or tiling men-
” tioned in the instrument, and to place the Court, whose province it

19

” is to declare the meaning of the words of the instrument, as near as
” may be in the situation of the parties to it.”
I would add that Parke B. continued:

” From the context of the instrument, and from these two descriptions
” of evidence, with such circumstances as by law the Court, without
” evidence, may of itself notice, it is its duty to construe and apply
” the words of that instrument; and no extrinsic evidence of the inten-
” tion of the party to the deed, from his declarations, whether at the
” time of his executing the instrument, or before or after that time, is
” admissible; the duty of the Court being to declare the meaning of
” what is written in the instrument, not of what was intended to have
” been written.”

To which I would also add, once more from Norton (p. 138):

” The subsequent admission as to the true meaning of a deed by, or
” subsequent conduct of, a party to … a deed, cannot be received to
” aid the construction of the deed “

though (p. 139): ” This rule does not apply to ancient documents.”

Lord Kilbrandon

MY LORDS,

The Appellants (Schuler) who are machine tool manufacturers in Ger-
many, entered into an agreement with the Respondents (Sales), who sell
machine tools in Britain and elsewhere, providing inter alia that the Respon-
dents should sell as agents for the Appellants, on a commission basis to six
named motor manufacturers, panel presses made by them. This is a com-
mercial relationship of a commonplace character, and it seems extraordinary
that the contract embodying it should have been drafted in terms which have
given rise to such acute differences of judicial opinion. There was only one
feature of the agreement which called for what may be an unusual stipula-
tion in contracts of this nature ; clause 7, after providing, in the ordinary
way, that “(a) subject to Clause 17 Sales will use its best endeavours to
” promote and extend the sale of Schuler products in the Territory “, goes on
as follows:—” (b) It shall be condition of this Agreement that:-

” (i) Sales shall send its representatives to visit the six firms whose
” names are listed in the Schedule hereto at least once in every week
” for the purpose of soliciting orders for panel presses;

” (ii) that the same representative shall visit each firm on each occa-
” sion unless there are unavoidable reasons preventing the visit being
” made by that representative in which case the visit shall be made by
” an alternate representative and Sales will ensure that such a visit is
” always made by the same alternate representative.

” Sales agrees to inform Schuler of the names of the representatives and
” alternate representatives instructed to make the visits required by this
” Clause.”

The question in this appeal is, whether when they used the word ” con-
” dition ” in 7(b) the parties meant to constitute a fundamental condition of
the contract. ” going to the root of the contract so that it is clear that the
” parties contemplated any breach of it entitles the other party at once
” to treat the contract as at an end “: Hong Kong Fir Shipping Co. Ltd. v.
Kawasaki Kisen Kaisha Ltd. 
[1962] 2 QB 26 per Upjohn L.J. at 63. It is
undoubted that parties may, if they so desire, make any term whatever,
unimportant as it might seem to be to an observer relying upon a priori
reasoning of his own, a condition giving entitlement, on its breach, to
rescission at the instance of the party aggrieved. The judgments in Bettini
v. Gye (1875) 1 Q.B.D. 183, are commonly cited as authority for a pro-
position which no one now challenges. Whether the words which the
parties have used in setting out their agreement do indeed exhibit a par-
ticular intention, as regards any particular stipulation, is a question of law.
But one would have hoped that by this time it would be been possible to
select words, in the context of the agreement as a whole, which would have

20

made clear what the parties intended mutually to agree upon. Such has
not, evidently, been achieved in the instant case.

If, as the Appellants submit, the use of the word “condition” in 7(b)
marks the intention of parties to provide, in the event of breach, a ground
for rescission, one is immediately struck by the fact that special provision
for a right to rescind, in certain other circumstances, has been made under
the heading “Duration of Agreement” in clause 11. Those circumstances,
again, are of a very mixed character. While the effect of clause 11 is to
give a right to rescind if a party ” shall have committed a material breach
” of its obligations hereunder and shall have failed to remedy the same
” within 60 days of being required in writing so to do”, many of the
obligations referred to are, in the strict sense, irremediable. For example,
once the Respondents have communicated the Appellant’s trade secrets in
breach of clause 14, or once the Appellants have published advertising
matter not containing the Respondent’s name, in breach of clause 17, the
damage is done, and nothing can be done within 60 days, or over, by way
of remedy. It is possible that ” remedy ” means ” satisfy the other party
” that it won’t happen again “. It is also possible that, in the case of a
truly irremediable material breach, which goes to the root of the contractual
relationship, as would presumably a breach of clause 14, you simply write
the provision for remedying in 60 days out of the document as a term
incapable of being fulfilled. And your Lordships have already noticed
the difficulties, under this clause, to which an anticipatory breach will give
rise.

On the whole, though without a great deal of confidence, I come to the
conclusion that the use of the word ” condition ” in 7(b) was not intended
by the parties to isolate an individual fundamental term, and to provide for
rescission, on any breach, in addition to the other more general provisions
for rescission set out in clause 11, without the opportunity being given to
the party at fault by clause 11 to put things right for the future, where the
nature of the breach made that possible. Thus, when the Appellants first
had reason to complain in January, 1963, of material breaches of clause 7(6),
they could have called upon the Respondent to make better arrangements
within 60 days, upon pain of rescission. It is only in this way that I can
give any meaning to the remedial provision.

But when one comes to October, 1964, and the situation as to visiting
obtaining at the time the Appellants claimed to rescind, considerable amend-
ment had been made; as the learned Arbitrator finds, the irregularities did
not amount to a material breach, and the provisions of clause 11 were there-
fore of no effect. Unless, therefore, contrary to my view, there is an inde-
pendent right to rescind under clause 7, to be deduced from the fact that
the parties selected the word ” condition ” in order to express their intention,
the Appellants cannot succeed.

I respectfully agree with the learned Master of the Rolls that one is not
constrained, by analogies from the Sale of Goods Act, 1893, or by authorities
such as the insurance cases, Thomson v. Weems 9 App. Cas. 671 and Dawson
v. Bonnin [1922] 2 A.C. 413, or by Wallis v. Pratt [1911] A.C. 400, so to
hold. One must, above all other considerations as I think in a case where
the agreement is in obscure terms, see whether an interpretation proposed is
likely to lead to unreasonable results, and if it is, be reluctant to accept it.
The grotesque consequences of an insistence on a right to rescind on any
breach of clause 7(b) do not require emphasis. It was suggested that one
must concede to the Appellants the right to inflict severe terms, since they
will have known their own interests better than we can do. Be that so, I
am not prepared to accept that if, instead of using the equivocal word ” condi-
” tion ” in clause 7, the Appellant’s draftsman had spelled out the conse-
quences he intended should follow upon the slightest breach, the Respon-
dents would have been prepared to sign the agreement presented to them.
I understand the view of the learned Arbitrator to be that they would not.

While I agree that this appeal should be dismissed, I would not be
prepared to do so upon a consideration of the actings of the parties, subse-
quent to the agreement, as permitting me to infer their contractual intentions

21

therefrom. I think this would be contrary to the principle of Whitworth v.
James Miller [1970] A.C. 583. The decision in Watcham v. A.G. of East
Africa Protectorate 
[1919] AC 533, which was referred to by the learned
Master of the Rolls, does not, I believe, command universal confidence,
though I would not question it so far as it merely lays down that, where the
extent of a grant of land is stated in an ambiguous manner in a conveyance,
it is legitimate to interpret the deed by the extent of the possession which
proceeded upon it. And I am not sure that I see any reason to confine such
a rule to ancient deeds. It is, however, a dubious expedient to attempt to
make out what parties meant by what they did; in the ordinary way one is
limited to deciding what they meant by what they said in the agreement
under construction. Of the cases concerning commercial contracts to which
we were referred. I understand Hillas and Co. Ltd. v. Areas Ltd. 43 Ll.L.
366 to hold that in what I will call an extension to a contract of sale, in the
absence of necessary stipulations literally provided therein, the necessary
stipulations contained in the original contract may be therein implied, in
order to prevent the sterile result of avoidance for uncertainty. In Radio
Pictures v. Inland Revenue 22 
T.C. 106, the problem was whether a particular
document could properly be included among the batch of documents which
as a whole formed the contract, so that the stipulations therein were them-
selves contractual. I can see that these cases are in some degree analagous
to Watcham, in as much as they concern the ambit or extent of the contract
rather than the interpretating of particular mutual obligations. That distinc-
tion may not be easily expressed in words, but at any rate I would be reluctant
to apply the Watcham doctrine to the construction of mercantile contracts.
In the present case, such application is, in any event, in my view unnecessary.
I would dismiss this appeal.

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