Harvela Investments Ltd & Ors v. Royal Trust Company Of Canada (CI) Ltd & Ors [1985] UKHL 16

House of Lords
Between
Harvela Investments Ltd & OrsAppellantRoyal Trust Company Of Canada (CI) Ltd & OrsRespondent
Before
Lord Fraser of TullybeltonLord DiplockLord Edmund-DaviesLord Bridge of HarwichLord TemplemanSir Leonard Outerbridge Edward NugeeDate 11 July 1985
My Lords,I have had the advantage of reading in draft the speeches of my noble and learned friends Lord Diplock and Lord Templeman, and I agree with them. For the reasons stated in them I would allow the appeal and make the declarations and orders proposed by Lord Templeman.

LORD DIPLOCK.

My Lords,the unanimous conclusions of the Appellate Committee on the three issues raised in these proceedings are voiced in the speech of my noble and learned friend Lord Templeman. In it he sets out the relevant facts which give rise to the three questions of law about legal obligations resulting from the contractual relations between the three parties to the appeal and cross-appeal to this House. These I will call, for brevity, 'the construction question' (which is the main question in the appeal by Harvela), 'the second contract question' and 'the interest question.' Since, like the remainder of your Lordships, I am in full agreement with Lord Templeman's speech, the brief observations of my own which I have ventured to append are written on the assumption that what he says has been already read and digested. What I myself am proposing to say should be treated as being in the nature of footnotes to it, which are designed to indicate the way in which those three questions of law and the solutions to them reached by this House are compatible with current juristic analyses of contractual obligations as they have been developed in the course of the last 25 years.The construction question turns on the wording of the telex of 15 September 1981 referred to by Lord Templeman as 'the invitation' and addressed to both Harvela and Sir Leonard. It was not a mere invitation to negotiate for the sale of the shares in Harvey & Co Ltd, of which the vendors were the registered owners in the capacity of trustees. Its legal nature was that of a unilateral or 'if ' contract, or rather of two unilateral contracts in identical terms to one of which the vendors and Harvela were the parties as promisor and promisee respectively, while to the other the vendors were promisor and Sir Leonard was promisee. Such unilateral contracts were made at the time when the invitation was received by the promisee to whom it was addressed by the vendors; under neither of them did the promisee, Harvela and Sir Leonard respectively, assume any legal obligation to anyone to do or refrain from doing anything.The vendors, on the other hand, did assume a legal obligation to the promisee under each contract. That obligation was conditional on the happening, after the unilateral contract had been made, of an event which was specified in the invitation; the obligation was to enter into a synallagmatic contract to sell the shares to the promisee, the terms of such synallagmatic contract being also set out in the invitation. The event on the happening of which the vendors' obligation to sell the shares to the promisee arose was the doing by the promisee of an act which was of such a nature that it might be done by either promisee or neither promisee but could not be done by both. The vendors thus did not, by entering into the two unilateral contracts, run any risk of assuming legal obligations to enter into conflicting synallagmatic contracts to sell the shares to each promisee.The two unilateral contracts were of short duration, for the condition subsequent to which each was subject was the receipt by the vendors' solicitors on or before 3 pm on the following day, 16 September 1981, of a sealed tender or confidential telex containing an offer by the promisee to buy the shares for a single sum of money in Canadian dollars. If such an offer was received from each of the promisees under their respective contracts, the obligation of the promisor, the vendors, was to sell the shares to the promisee whose offer was the higher; and any obligation which the promisor had assumed to the promisee under the other unilateral contract came to an end, because the event the happening of which was the condition subsequent to which the vendors' obligation to sell the shares to that promisee was subject had not happened before the unilateral contract with that promisee expired.Since the invitation in addition to containing the terms of the unilateral contract also embodied the terms of the synallagmatic contract into which the vendors undertook to enter on the happening of the specified event, the consequence of the happening of that event would be to convert the invitation into a synallagmatic contract between the vendors and whichever promisee had offered, by sealed tender or confidential telex, the higher sum. To this I shall advert briefly when I come to mention the fresh contract question and the interest question.The answer to the construction question itself, however, appears to me to present no difficulties in so far as it leads to the conclusion that the condition subsequent to which the vendors' obligations under the unilateral contracts were subject was incapable of being fulfilled by either promisee except by a self-contained offer of a purchase price for the shares expressed as a fixed sum of money which does not necessitate, for its quantification, reference to offers made by any other bidders. I appreciate that this cannot be quite so obvious as I myself have thought throughout, seeing that the Court of Appeal felt compelled to come to a different conclusion.In the case of a unilateral contract, until it is converted, if it ever is, into a synallagmatic contract between promisor and promisee, the only question of construction is: what legal obligation would the words used by the promisor reasonably convey to the promisee that it was the intention of the promisor to assume towards him?The invitation invited each promisee to whom it was addressed to specify by a fixed hour on the following day the price at which he was willing to accept the promisor's offer to sell the shares on the terms set out in the invitation. Such price was to be specified, not by an offer of which the other promisee could obtain knowledge, but by sealed tender or confidential telex the contents of which the promisor undertook should not be disclosed to the other promisee until it was too late for him to make a timeous offer.The whole business purpose of unilateral contracts inviting two or more promisees to submit sealed tenders of a purchase price for property which are not to be disclosed to any competing promisee and imposing on the promisor a legal obligation to transfer the property to the promisee whose tender specifies the highest price is that each promisee should make up his mind as to the maximum sum which he estimates the property is worth to him, not a sum of money the amount of which cannot be determined except by reference to amounts specified in sealed tenders received from other promisees of which, under the terms of the unilateral contract, he is to be denied all knowledge before the time for making his own tender has expired. That business purpose would be defeated by a tender which took the form of an offer to purchase the property not for a specified fixed sum of money but for a sum greater by some specified amount than the fixed sum specified in the sealed tender lodged by some other promisee by the terms of a unilateral contract in identical terms. What other sensible reason could there be for making it a term of each unilateral contract that the promisee should be kept in ignorance of the amounts offered by any other promisees?The business purpose of a unilateral contract of this type providing for sealed tenders and the resulting construction placed on it of excluding referential bids of the kind made by Sir Leonard was judicially recognised as long ago as 1898 in South Hetton Coal Co v Haswell Shotton and Easington Coal and Coke Co [1898] 1 Ch 465 , cited by my noble and learned friend Lord Templeman. Until the judgment of the Court of Appeal in the instant case (see [1985] 1 All ER 263, [1985] Ch 103) the ratio decidendi of that judgment of Lindley MR has never been doubted or questioned. I agree with Lord Templeman that the grounds on which the Court of Appeal sought to distinguish the instant case from the South Hetton case are unsound. Your Lordships should take this opportunity of confirming the judgment in the South Hetton case and thereby put it beyond further question.My Lords,I turn next to the second contract question, the answer to which appears to me to be self-evident. Sir Leonard claims that a fresh synallagmatic contract coming into existence on 29 September 1981 was made by his offer of 16 September 1981 to buy the shares at a price of $101,000 more than whatever fixed price was bid by Harvela and an acceptance of that offer by the vendors' telex of 29 September 1981 to Sir Leonard. To create such a fresh contract there must have been an intention on the part of each party, manifested to the other, to assume fresh contractual obligations to the other party which he had not hitherto been under any legal liability to perform. It seems to me to be clear beyond argument that there was no such intention by either party and none was manifested by either party to the other. Sir Leonard's only intention in making his offer of 16 September 1981 was to comply with the condition subsequent specified in the unilateral contract of 15 September and by so doing to convert it into the synallagmatic contract, the terms of which were contained in the invitation, which he asserted gave rise to the contractual obligation on the part of the vendors to transfer the shares to him; while the vendors' only intention, as the wording of their telex of 29 September makes clear, was to perform the legal obligation to Sir Leonard by which they were already bound under the synallagmatic contract into which the unilateral contract they had made with him had, as they believed, been converted. That each had misconstrued that unilateral contract cannot transform their common intention to perform an existing contract into an intention to make a fresh and different one.I come finally to the interest question. A telex was sent on 29 September 1981 by the vendors to Harvela notifying Harvela of the terms of the offers which had been received from Harvela and Sir Leonard, and stating that the vendors were bound to and did thereby accept Sir Leonard's alternative offer expressed as $101,000 in excess of Harvela's offer, which, unknown to Sir Leonard, was for the sum of $2,175,000. This constituted an anticipatory breach of a fundamental term of the synallagmatic contract by the vendors with Harvela to sell the shares to Harvela, into which the unilateral contract of 15 September 1981 had been converted at 3 pm on 16 September 1981 by the offer by Harvela of $2,175,000 for the shares, which was higher than the only fixed sum that had been offered at that time and date by Sir Leonard, viz $2,100,000. On receipt of the telex Harvela had the choice of electing between either treating the vendors and Harvela itself as continuing to be under a legal obligation to perform that synallagmatic contract in accordance with its terms, or treating as terminated the primary obligations of both parties not yet performed, and in the case of those primary obligations of the vendors, but not those of Harvela, replaced by secondary obligations to pay compensation by way of damages to Harvela for any loss sustained by it as a result of the vendors' failure to perform them. Harvela elected to hold the vendors to their primary obligations under the synallagmatic contract but this necessitated it seeking from the High Court its aid in compelling the vendors to do so. The form in which such aid was available was by the equitable remedy of specific performance, a remedy which, before the creation by the Supreme Court of Judicature Act 1875 of a unified Supreme Court and the fusion of common law and the rules of equity, could only be granted by a Chancery court. It was not available in courts of common law, where the only remedy took the form of compelling the payment of monetary damages.Just as damages at common law for breach of contractual obligations are intended to put the party not in breach in the same position, so far as money can do so, as if the contractual obligations had been performed by the other party, so too the equitable remedy of specific performance is intended to put both parties in the same position as if their respective contractual obligations had been timeously performed by both of them. This finds expression in the maxim 'equity treats as done that which ought to have been done'. In the instant case if both the vendors and Harvela had performed their respective obligations under the synallagmatic contract the vendors would have transferred the shares to Harvela not later than 15 October 1981, the closing date, and Harvela on the same day would have paid to the vendors the purchase price of $2,175,000 by banker's draft payable at sight. If that had been done Harvela would have become registered owners of the shares on 15 October 1981 and entitled to any dividends distributed on the shares thereafter, while the vendors would have had the use of the $2,175,000 to invest or deal with as they thought fit in the interest of the beneficiaries of the trust of which they were trustees. Instead of that, because of the delay on the part of the vendors between the closing date and that date on which your Lordships' order for specific performance is complied with, all of which delay, amounting now to nearly four years, is the consequence of the vendors' anticipatory breach of their contractual obligation and the ensuing litigation, Harvela has not received the dividends distributed on the shares, the amount of which is trivial; but the rest of the profits made by Harvey & Co Ltd and its subsidiaries have been retained in those companies, thus enhancing the value of the shares which will be transferred to Harvela under your Lordships' order, in return for the payment of $2,175,000. In the mean time, however, Harvela has continued to have the use of that sum. To fail to make allowance for the benefit that Harvela received by having the use of the money would be to over-compensate it, to put it in a better position than that in which it would have been if the contractual obligations of Harvela and the vendors had been timeously performed by both parties. Unless there has been unconscionable conduct by a party against whom the remedy of specific performance is granted sufficient to displace the general rule expressed in the maxim of equity which I have mentioned, that rule ought to be applied by your Lordships. For the reasons given by Lord Templeman in his speech I agree that no unconscionable conduct by the vendors has been shown and that the appropriate measure of the value to Harvela of the use of the money during the period of delay is interest thereon reckoned at the short-term investment rate.

LORD EDMUND-DAVIES.

My Lords,I have had the advantage of reading in draft the speeches prepared by my noble and learned friends Lord Diplock and Lord Templeman, and I gratefully adopt them. I would accordingly allow this appeal and concur in making the declarations and orders proposed by Lord Templeman.

LORD BRIDGE OF HARWICH.

My Lords,on the main issue I agree that for all the reasons given in the speeches of my noble and learned friends Lord Diplock and Lord Templeman, Sir Leonard's referential bid was not, on the true construction of the invitation, a valid offer. Without intending to derogate in any way from the cogency of the other grounds for reaching that conclusion, there seems to me to be one that is decisive. The invitation embodied an undertaking not to disclose the details of any offer to any party before the deadline of 3 pm on Wednesday, 16 September 1981. Sir Leonard's referential bid could not be quantified without reading into it the amount of Harvela's fixed bid. To do this before the deadline would have been, in my opinion, a breach of the undertaking. To do it after the deadline would have been too late.On all the other issues I agree, for the reasons given in the speech of my noble and learned friend Lord Templeman, with the conclusions which he expresses and the orders he proposes.

LORD TEMPLEMAN.

My Lords,by telex messages (the invitation) dispatched on 15 September 1981 the respondent vendors, Royal Trust Co of Canada (CI) Ltd, invited the appellant, Harvela Investments Ltd (Harvela), and Sir Leonard Outerbridge (Sir Leonard), to make offers to purchase the vendors shares in A Harvey & Co Ltd (the shares). The invitation stipulated that offers must be made by sealed tender or confidential telex which would not be divulged by the vendors before the invitation expired at 3 pm on 16 September 1981 when the vendors would accept 'the highest offer'. Completion of the purchase was to take place within 30 days of 16 September 1981 in Canadian dollars.Harvela offered $2,175,000. Sir Leonard offered $2,100,000 'or C$101,000 in excess of any other offer which you may receive which is expressed as a fixed monetary amount, whichever is the higher'. Harvela claim the shares at the price of $2,175,000. Sir Leonard claims the shares at the price of $2,276,000 as a result of his referential offer of $101,000 more than Harvela's fixed offer. Peter Gibson J found in favour of Harvela (see [1984] 2 All ER 65, [1985] Ch 103). The Court of Appeal (Waller, Oliver and Purchas LJJ) found in favour of Sir Leonard (see [1985] 1 All ER 263, [1985] Ch 103). This appeal is brought by Harvela with the leave of your Lordships' House.The issued share capital of A Harvey & Co Ltd (the company) was held as to 43% by the Harvey family, represented by Harvela, 40% by the Outerbridge family, represented by Sir Leonard, and 12% by the vendors. Acquisition of the shares by Harvela or by Sir Leonard would confer control of the company on the purchaser. When the vendors were tempted to sell the shares an initial offer of $443,600 by Harvela blossomed by 15 September 1981 into an offer by Harvela of $1,741,612 and an offer by Sir Leonard of $1,741, 942 but the terms and conditions of the two offers were different. The Harvela offer was due to expire at close of business on 15 September 1981 and Sir Leonard's offer was due to expire at 5 pm on 16 September 1981. On 15 September 1981 the invitation was dispatched to Harvela and Sir Leonard. The full terms of the invitation, as subsequently amended, were as follows:
'We have before us two similar offers but subject to differing terms and conditions and value. Accordingly we invite you to submit to the Royal Trust Company of Canada (C.I.) Limited the registered holder of the shares referred to below any revised offer which you may wish to make by sealed tender or confidential telex to be submitted to our London solicitors, Messrs. Bischoff and Co., City Wall House, 79/83 Chiswell Street, London EC1 by 3 p.m. London time Wednesday 16 September 1981. Attention J. Jowitt who has undertaken not to disclose any details of any revised offer to any party before that time … Tenders are to be submitted on the following terms:-1. That tenders are a single offer for all shares held by us. 2. That payment of the agreed purchase price shall be within 30 days of 16th September 1981. (The date of actual payment hereafter called the “closing date”). 3. Payment shall be in full on the closing date without any deduction. 4. The closing shall take place at Messrs Bischoffs' office payment being by banker's draft payable at sight drawn on the head office of a London clearing bank in Canadian dollars. 5. In the event that closing shall not take place within 30 days other than by reason of any delay on our part interest shall be payable by the purchaser on the full purchase price at a rate higher by 4 per cent than the Bank of Montreal prime rate from time to time for Canadian dollar loans. We hereby agree subject to acceptance by us of any offer made by you … C) We confirm that if any offer made by you is the highest offer received by us we bind ourselves to accept such offer provided that such offer complies with the terms of this telex … '
Before the invitation expired Harvela and Sir Leonard made the offers which resulted in this litigation, namely by Harvela $2,175,000 and by Sir Leonard $2,100,000 'or C$101,000 in excess of any other offer which you may receive which is expressed as a fixed monetary amount, whichever is the higher'.Where a vendor undertakes to sell to the highest bidder the vendor may conduct the sale by auction or by fixed bidding. In an auction sale each bidder may adjust his bid by reference to rival bids. In an auction sale the purchaser pays more than any other bidder is prepared to pay to secure the property. The purchaser does not necessarily pay as much as the purchaser was prepared to pay to secure the property. In an auction a purchaser who is prepared to pay $2·435m to secure a property will be able to purchase for $2·432m if no other bidder is prepared to offer as much as $2·432m.In a fixed bidding sale a bidder may not adjust his bid. Each bidder specifies a fixed amount which he hopes will be sufficient, but not more than sufficient, to exceed any other bid. The purchaser in a fixed bidding sale does not necessarily pay as much as the purchaser was prepared to pay to secure the property. But any bidder who specifies less than his best price knowingly takes a risk of being outbid. In a fixed bidding sale a purchaser who is prepared to pay $2·435m to secure the property may be able to purchase for $2·432m if the purchaser offers $2·432m and no other bidder offers as much as $2·432m. But if a bidder prepared to pay $2·435m only offers $2·432m he will run the risk of losing the property and will be mortified to lose the property if another bidder offers $2·433m. Where there are two bidders with ample resources, each determined to secure the property and to prevent the other bidder from acquiring the property, the stronger will prevail in the fixed bidding sale and may pay more than in an auction which is decided not by the strength of the stronger but by the weakness of the weaker of the two bidders. On the other hand, an open auction provides the stimulus of perceived bidding and compels each bidder, except the purchaser, to bid up to his maximum.Thus auction sales and fixed bidding sales are liable to affect vendors and purchasers in different ways and to produce different results. The first question raised by this appeal, therefore, is whether Harvela and Sir Leonard were invited to participate in a fixed bidding sale, which only invited fixed bids, or were invited to participate in an auction sale, which enabled the bid of each bidder to be adjusted by reference to the other bid. A vendor chooses between a fixed bidding sale and an auction sale. A bidder can only choose to participate in the sale or to abstain from the sale. The ascertainment of the choice of the vendors in the present case between a fixed bidding sale and an auction sale by means of referential bids depends on the presumed intention of the vendors. That presumed intention must be deduced from the terms of the invitation read as a whole. The invitation contains three provisions which are only consistent with the presumed intention to create a fixed bidding sale and which are inconsistent with any presumed intention to create an auction sale by means of referential bids.By the first significant provision, the vendors undertook to accept the highest offer; this shows that the vendors were anxious to ensure that a sale should result from the invitation. By the second provision, the vendors extended the same invitation to Harvela and Sir Leonard; this shows that the vendors were desirous that each of them, Harvela and Sir Leonard, and nobody else, should be given an equal opportunity to purchase the shares. By the third provision, the vendors insisted that offers must be confidential and must remain confidential until the time specified by the vendors for the submission of offers had elapsed; this shows that the vendors were desirous of provoking from Sir Leonard an offer of the best price he was prepared to pay in ignorance of the bid made by Harvela and equally provoking from Harvela the best price they were prepared to pay in ignorance of the bid made by Sir Leonard.A fixed bidding sale met all the requirements of the vendors deducible from the terms of the invitation. A fixed bidding sale was bound to result in a sale of shares save in the unlikely event of both Harvela and Sir Leonard failing to respond to the invitation. A fixed bidding sale gave an equal opportunity to Harvela and Sir Leonard to acquire the shares. A fixed bidding sale provoked the best price, or at any rate something approximate to the best price, which the purchaser was prepared to pay to secure the shares and to ensure that the rival bidder did not acquire the shares. On the other hand, if the invitation is construed so as to create an auction sale by means of referential bids, the requirements of the vendors deducible from the terms of the invitation could not be met.First, if referential bids were permissible, there was a danger, far from negligible, that the sale might be abortive and the shares remain unsold. The shares would only be sold if at least one bidder submitted a fixed bid and the other bidder based his referential offer on that fixed bid. In the events which happened Harvela put forward a fixed bid of $2,175,000 and Sir Leonard made a referential bid of $101,000 more than Harvela's fixed bid, thus enabling Sir Leonard's referential bid to be quantified at $2,276,000. But if Sir Leonard's referential bid had not been expressed to be based on Harvela's fixed bid, or if Harvela had not made a fixed bid but only a referential bid, then Sir Leonard's bid could not have been quantified. Similarly, if Harvela had made a referential bid not expressed to be tied to Sir Leonard's fixed bid, or if Sir Leonard had not made a fixed bid but only a referential bid, then Harvela's bid could not have been quantified. The sale would have been abortive although both bidders were anxious to purchase and submitted offers.Second, if referential bids were permissible, there was also a possibility, which in fact occurred, that one bidder would never have an opportunity to buy. In the present case Harvela, by putting forward a fixed bid, could never succeed in buying the shares although the invitation had been extended to them. Harvela's only part in the sale was unwittingly to determine the price at which Sir Leonard was entitled and bound to purchase the shares. Harvela could not win and Sir Leonard could not lose. There was nothing in the invitation to warn Harvela that they must submit a referential bid if they wished to make sure of being able to compete with Sir Leonard. There was nothing in the invitation which indicated to Sir Leonard that he was entitled to submit a referential bid. But no one has argued that the invitation did not invite fixed bids; indeed, Sir Leonard submitted a fixed bid, albeit as an unsuccessful alternative to his referential bid.Third, if referential bids were permissible, the vendors' object of provoking the best price that Harvela and Sir Leonard were each prepared to offer in ignorance of the rival bid was frustrated. Harvela put forward the fixed bid of $2,175,000 which represented the amount which Harvela hoped would exceed Sir Leonard's bid and which, because Harvela was bidding in ignorance of Sir Leonard's bid, must be or approximate to the best price which Harvela was prepared to pay to secure the shares and to ensure that Sir Leonard did not acquire the shares. Sir Leonard did not put forward his best price; Sir Leonard put forward his worst price, $2,100,000, but declared that he would pay $101,000 more than Harvela. Sir Leonard could have achieved the same purpose by offering five dollars or one dollar more than Harvela. If Sir Leonard had appreciated that he was taking part in a fixed bidding sale, then, judging by his minimum fixed bid of $2,100,000 and his unlimited referential bid, he might have been prepared to offer as his best price more than the sum of $2,276,000 which he now claims to be the purchase price of the shares. We shall never know because Sir Leonard did not reveal his best price.Finally, if referential bids were permissible by implication, without express provision in the invitation for that purpose, and without any indication in the invitation of the nature of the referential bids which would be acceptable, the results could have been bizarre. In the present case Sir Leonard bid $2,100,000 or $101,000 in excess of Harvela's fixed bid. If Harvela had bid $2,000,000 or one dollar more than Sir Leonard's fixed bid then Sir Leonard would have become the purchaser with his referential bid of $2,101,000 as against Harvela's referential bid of $2,100,001. But if Harvela had offered $1,900,000 or one dollar more than Sir Leonard's fixed bid then Harvela would have been the purchaser at their referential bid of $2,100,001 as against Sir Leonard's referential bid of $2,001,000. Sir Leonard's bid in the second example is the same as his bid in the first example but he loses. Harvela's bid in the second example is lower than Harvela's bid in the first example but Harvela wins. The vendors are worse off by $999 in the second example.It would have been possible for the vendors to conduct an auction sale through the medium of confidential referential bids but only by making express provision in the invitation for the purpose. It would not have been sufficient for the invitation expressly to authorise 'referential bids' without more. For such an authorisation would have rendered the result of the sale uncertain and random in view of the illustrations and examples I have already given. It would have been necessary for the invitation to require each bidder who made a referential bid to specify a maximum sum he was prepared to bid. That requirement would ensure that the sale was not abortive and that both bidders had a genuine chance of winning. A maximum bid requirement would ensure a sale at a price in excess of the maximum bid of the unsuccessful bidder, but it would not necessarily procure a sale at the maximum price of the successful bidder. The sale would in effect be an auction sale and produce the consequences of an auction sale because the vendors would have made express provision for bids to be adjusted and finalised by reference to the maximum bid of the unsuccessful bidder. But without such express provisions the invitation is not consistent with an auction sale.To constitute a fixed bidding sale all that was necessary was that the vendors should invite confidential offers and should undertake to accept the highest offer. Such was the form of the invitation. It follows that the invitation on its true construction created a fixed bidding sale and that Sir Leonard was not entitled to submit and the vendors were not entitled to accept a referential bid.The argument put forward by counsel for Sir Leonard was that the referential bid was an 'offer' and therefore Sir Leonard was entitled to submit a referential bid. In acceding to this argument, the Court of Appeal recognised that the consequences could be unfortunate and would be unforeseeable; the Court of Appeal was inclined to blame such unfortunate and unforeseeable consequences on the vendors for binding themselves to accept the highest bid or for not expressly forbidding the submission of a referential bid. My Lords, in my opinion the argument based on the possible meaning of the word 'offer' confuses definition with construction and the procedure adopted by the vendors is not open to justifiable criticism because the invitation was clear and unambiguous. The court is not concerned to define the word 'offer' in isolation without regard to its context and by reference to the widest possible meaning which can be culled from the weightiest available dictionary. The mere use by the vendors of the word 'offer' was not sufficient to invoke all the frustrating dangers and uncertainties which inevitably follow from uncontrolled referential bids. The task of the court is to construe the invitation and to ascertain whether the provisions of the invitation, read as a whole, create a fixed bidding sale or an auction sale. I am content to reach a conclusion which reeks of simplicity, which does not require a draftsman to indulge in prohibitions, but which obliges a vendor to specify and control any form of auction which he seeks to combine with confidential bidding. The invitation required Sir Leonard to name his price and required Harvela to name its price and bound the vendors to accept the higher price. The invitation was not difficult to understand and the result was bound to be certain and to accord with the presumed intentions of the vendors discernible from the express provisions of the invitation. Harvela named the price of $2,175,000; Sir Leonard failed to name any price except $2,100,000, which was less than the price named by Harvela. The vendors were bound to accept Harvela's offer.I am also content to follow the decision reached by Lindley MR, Rigby and Vaughan Williams LJJ in South Hetton Coal Co v Haswell Shotton and Easington Coal and Coke Co [1898] 1 Ch 465 . In the South Hetton case there was no fixed bid but only a referential bid by one bidder of £200 more than the amount offered by the other bidder, who offered £31,000. The referential bid was held to be invalid. The South Hetton case was decided by a powerful court, has stood unchallenged for over 80 years and was binding on the Court of Appeal in the present case. It was argued that Sir Leonard's unsuccessful valid bid of $2,100,000 in some unexplained fashion transformed his invalid referential bid a valid bid, but the argument owes everything to wishful thinking and nothing to logic. It was also argued that the South Hetton case was distinguishable because the vendors in that case undertook to accept 'the highest net money tender', whereas in the present case the vendors undertook to accept 'the highest offer'. The argument seeks to elevate a trivial difference into a legal distinction. The decision in the South Hetton case was followed by a majority of the members of the New York Court of Appeals in SSI Investors Ltd v Korea Tungsten Mining Co Ltd (1982) 449 NYS 2d 173. The majority judgment succinctly and cogently summarised the reasons for rejecting bids as follows (at 174-175):
'The very essence of sealed competitive bidding is the submission of independent, self-contained bids, to the fair compliance with which not only the owner but the other bidders are entitled … to give effect to this or any similar bidding practice in which the dollar amount of one bid was tied to the bid or bids of another or others in the same bidding would be to recognise means whereby effective sealed competitive bidding could be wholly frustrated. In the context of such bidding, therefore, a submission by one bidder of a bid dependent for its definition on the bids of others is invalid and unacceptable as inconsistent with and potentially destructive of the very bidding in which it is submitted.'
The second question raised by this appeal relates to events which occurred after the vendors became bound at 3 pm on 16 September 1981 to sell the shares to Harvela for $2,175,000 pursuant to the invitation and to the offer made by Harvela. Sir Leonard claims that on 29 September 1981 the vendors accepted his referential offer of $2,276,000 so as to create a contract independent of the invitation. Sir Leonard admits that any second contract in his favour relating to the shares cannot be specifically performed because of the earlier first contract in favour of Harvela, but Sir Leonard seeks damages for breach by the vendors of the alleged second contract. Sir Leonard's claim to a second contract is based on a telex message dispatched by the vendors' solicitors on 29 September 1981 to Sir Leonard and to Harvela. The telex message reproduced the offers which had been submitted to the vendors by Harvela and Sir Leonard in response to the invitation and continued:
'In the circumstances our clients are bound to accept and do hereby accept the offer received from Sir Leonard Outerbridge and give notice that they propose and require the purchase of the shares to be completed on the 15th October next on which date (conditional upon the payment of the purchase price and upon the terms of the invitation telex) they will do all such acts and things as are pursuant to the invitation telex to be done on the closing date. Regards.'
It is clear that the vendors were acting under the erroneous belief that Sir Leonard's referential bid entitled him to the shares. When Harvela disputed the right of Sir Leonard to claim the shares pursuant to the invitation the vendors were debarred from completing with Sir Leonard until the outcome of this present litigation. If Sir Leonard was already entitled to the shares a second contract was unnecessary. If Harvela was entitled to the shares a second contract to sell to Sir Leonard was unthinkable. In Beesly v Hallwood Estates Ltd [1960] 2 All ER 314, [1960] 1 WLR 549 a landlord corresponded with a tenant in the mistaken belief that the tenant had duly exercised an option binding on the landlord to renew the lease. That correspondence did not create a contract or entitle the tenant to a renewal after the landlord discovered that the option was not binding. Buckley J said ([1960] 2 All ER 314 at 322, [1960] 1 WLR 549 at 558):
'These letters were all written at a time when the plaintiff and her solicitors and the directors of the defendant company and their solicitors all believed that the option was exercisable by the plaintiff and enforceable against the defendant company. They were written with the mutual intention of giving effect to what were believed to be the existing rights of the plaintiff. I am satisfied that none of the parties concerned thought or intended at the time that any new contractual rights would or should be created by this correspondence … Any transaction between two or more parties can, in my judgment, only result in a contract between them if they enter into that transaction with an intention to create binding contractual obligations or in circumstances in which such an intention must be attributed to them. The facts of the present case negative such an intention, for, as I find, these letters were written with the intention of carrying out what were thought to be existing obligations, not of creating any new obligation.'
Similarly in the present case the telex message of 29 September 1981 was dispatched with the intention of carrying out what were thought to be existing obligations. Counsel for Sir Leonard submitted that when the vendors in the telex message of 29 September 1981 affirmed that the vendors 'do hereby accept the offer received from Sir Leonard' the vendors were entering into an independent contract with Sir Leonard, but, in my opinion this submission also founders because it considers the expression relied on by counsel for Sir Leonard in isolation and ignores the context and contents of the telex message which are only consistent with a mistaken belief by the vendors that the vendors were by the invitation bound to accept Sir Leonard's referential bid. Accordingly, and contrary to the views expressed by Peter Gibson J, I do not consider that a second contract came into existence.The third question is whether the vendors are entitled to be paid by Harvela interest on the purchase price of $2,175,000 from the closing day, namely 15 October 1981, until payment. The invitation specified that:
'In the event that closing shall not take place within 30 days other than by reason of any delay on [the vendors'] part interest shall be payable by the purchaser on the full purchase price at a rate higher by 4 per cent than the Bank of Montreal prime rate from time to time for Canadian dollar loans.'
On behalf of Harvela counsel submits that Harvela made a fixed bid of $2,175,000 which proved to be the highest bid and Harvela became entitled to the shares pursuant to the invitation. The sale was not completed because the vendors declined, mistakenly as it now appears, to recognise and fulfil their duties under the invitation to sell to Harvela. On behalf of the vendors counsel submits that interest is payable unless the vendors were to blame for the delay. The delay was due to Sir Leonard, who submitted the referential bid and maintained that he was entitled to the shares. The vendors were powerless to complete until the inevitable litigation was resolved. In my opinion, in the events which have happened, the vendors are not entitled to interest at the contractual penal rate imposed by the invitation. Harvela made the highest bid and were ready, willing and able to complete on the completion date. The conduct of the vendors was not blameworthy but they declined to complete. As between Harvela and the vendors, the failure to complete was due to delay on the part of the vendors. It would have been possible for the vendors to seek an interlocutory order barring Sir Leonard from the equitable remedy of specific performance and confining him to damages at the option of the vendors even if he succeeded in establishing his claim to be the purchaser pursuant to the invitation unless Sir Leonard undertook that he would pay to the vendors interest at the contractual rate from the completion date if, in the event, Harvela established its claim to be the purchaser. Corresponding relief could have been granted to the vendors against Harvela.On behalf of the vendors counsel submitted in the alternative that, if the vendors are not entitled to interest at the contractual rate pursuant to the express provisions of the invitation, nevertheless the court should, in the exercise of its discretion in awarding the equitable remedy of specific performance, decline to make any such order at the behest of Harvela save on terms that Harvela pay a reasonable rate of interest from the completion date to the date of actual completion. On behalf of Harvela counsel submits that, if the vendors fail to establish their contractual claim to interest at law, they are not entitled to be allowed any interest in equity.Although the sale was not completed on 15 October 1981 because of delay on the part of the vendors, the conduct of the vendors was not unreasonable. Harvela could have sought and obtained an interlocutory injunction restraining the vendors from completing with Sir Leonard; Sir Leonard could have sought and obtained a similar injunction restraining the vendors from completing with Harvela until the litigation had finally established the rights of the parties. There is a well-recognised principle that, subject to any contractual provision to the contrary, the vendor ought to be entitled from the completion date to interest on the purchase money, which in equity belongs to the vendor, and the purchaser ought to be entitled from the completion date to the fruits of the property, which in equity belongs to the purchaser. A corresponding principle is that if the vendor is not to blame for the delay in completion then again, subject to any contractual provision to the contrary, the purchaser should not be allowed to claim the fruits of the property and to retain the benefit of interest which was or could have been earned by the purchaser on the purchase price which in equity belongs to the vendor. Every case must be judged on its merits. In the present case the vendors are not blameworthy, Harvela had the use of the purchase price of $2,175,000 for nearly four years, Harvela could have paid the purchase price into court and Harvela will benefit from the profits made by the company since 16 September 1981. Those profits have not been distributed save to honour preferential dividends. In these circumstances it will be unconscionable for Harvela to enjoy the purchase price and the benefit of profits attributable to the shares and available to Harvela once completion takes place and Harvela assume control of the company. Counsel for Harvela submitted that there was no sufficient evidence that the company made profits during the past four years. The company has provided accounts which disclose the profits of the company but do not disclose the profits owned by the subsidiaries of the company. The accounts show that the company has made profits in the region of hundreds of thousands of dollars and that, consistently with the year preceding the accounts, it is likely that the subsidiaries have made profits of millions of dollars which could be, but have not yet been, distributed to the company. At any rate, Harvela having offered $2,175,000 for 12% of the share capital of the company, and having sought specific performance, show no signs of repenting its bargain and I conclude that Harvela is not entitled to the benefit of interest attributable to the purchase money as well as the profits attributable to the contractual property. Harvela could have paid the purchase price of £2,175,000 into court on the completion date to earn interest at the short-term investment rate. In my opinion, as a condition of specific performance, Harvela should pay to the vendors interest at that rate from 15 October 1981 until actual payment of the purchase price. Harvela will be entitled to the preference dividends received by the vendors in respect of the shares since 15 October 1981.There remains the question of costs. As between Harvela and Sir Leonard the battle over the shares has been won by Harvela. In accordance with principle Sir Leonard must pay the costs of Harvela of all the present proceedings, claim and counterclaim, here and below, although Sir Leonard was temporarily successful in the Court of Appeal and has the doubtful privilege of contributing to precedent. The vendors were necessarily parties to the litigation which decided the destination of the shares but the battle for the shares was waged between Harvela and Sir Leonard. The vendors, through counsel, permitted themselves some helpful observations on the theory and practice of referential bids and expressed some wistful regrets that victory for Harvela would deprive the vendors of the additional referential bid which Sir Leonard was willing to make. Both Harvela and Sir Leonard claimed against the vendors at various stages of this litigation that interest was not payable on the purchase price. As between Harvela and Sir Leonard on the one hand and the vendors on the other hand, the vendors have established that they are now entitled to interest though not at the contract rate. The interest battle has been decided in favour of the vendors and against Harvela and Sir Leonard. In addition, Sir Leonard claimed and failed to establish that the vendors entered into a second contract with him. In the circumstances, I would order Sir Leonard to pay four-fifths of the costs of the vendors in all the proceedings here and below, claim and counterclaim, and order Harvela to pay the remaining one-fifth of the costs of the vendors. Sir Leonard must bear his own costs.The vendors accepted that Harvela was entitled to an inquiry as to the damages (if any) sustained by Harvela by reason of delay in completion of the sale of the shares. All parties accepted that Sir Leonard is liable for the damages (if any) sustained by Harvela and the vendors as a result of the stay ordered by Peter Gibson J on 29 November 1983. Sir Leonard is also liable on his undertaking given to the vendors and Harvela on 29 November 1983 for any damages payable under those undertakings, such damages to be assessed by an inquiry.The vendors and Harvela have very helpfully submitted a draft minute of order and, based on those drafts and on the conclusions reached by your Lordships, I have annexed to this speech a draft of the appropriate order.Appeal allowed.

THE ANNEXURE

Draft Minutes of Order

On report it is ordered and adjudged that the said order of Her Majesty's Court of Appeal of 18 July 1984 complained of in the said appeal be and the same is hereby reversed it is declared(1) that the respondent the Royal Trust Co of Canada (CI) Ltd (hereinafter referred to as 'Royal Jersey') is contractually bound to transfer the following shares in the capital of the respondent A Harvey & Co Ltd (hereinafter referred to as 'the company') that is to say 825 common shares, 311 6% voting preference shares and 24,337 non-voting redeemable preference shares (hereinafter collectively referred to as 'the shares') to the appellant Harvela Investments Ltd (hereinafter referred to as 'Harvela') in accordance with the terms and conditions contained in the telexes respectively mentioned in paragraphs 10 and 12 of the statement of claim in the action at the purchase price of $Can2,175,000(2) that as a condition of the order for specific performance hereinafter made Harvela is liable to pay to Royal Jersey interest on the said purchase price from 15 October 1981 until actual payment at the short-term investment rate from time to time applicable to moneys paid into court but that Harvela is entitled to be paid on completion the amount of the dividend and interest (if any) paid or payable by the company in respect of the said shares in respect of the said period it is ordered(1) that the said contract be performed specifically and carried into execution(2) that the following accounts be taken that is to say (A) an account of what is due to Royal Jersey for the said purchase price and interest (B) an account of what is due to Harvela for the said dividends and interest(3) that what shall be found due on the said account numbered (2)(B) be deducted from what shall be found due on the said account numbered (2)(A) and the balance certified(4) that on Harvela (i) paying to Royal Jersey at the offices of Messrs Bischoff & Co in London and at a time and day to be fixed by the court the amount of the balance certified as aforesaid or so much thereof as Harvela shall be liable to pay after making such withholding therefrom in respect of Canadian tax on capital gains as is required by Canadian law and (ii) delivering to Royal Jersey at such place and time and day as aforesaid all such certificates and other matters in respect of such tax as aforesaid as may be required under Canadian law or as Royal Jersey may reasonably require Royal Jersey do deliver to Harvela's solicitors at such place and time and day as aforesaid (i) the certificates representing the shares duly indorsed by Royal Jersey in favour of Harvela and (ii) an irrevocable power of attorney appointing Harvela and its successors and assigns as nominee representative or proxy to cast the votes attached to the shares at any general or class meeting of shareholders(5) that the following inquiries be made that is to say (C) an inquiry as between Harvela and Royal Jersey as to what damages (if any) have been sustained by Harvela by reason of the delay of Royal Jersey in completion of the said contract (D) an inquiry as between Harvela and the respondent Sir Leonard Outerbridge (hereinafter r eferred to as 'Sir Leonard') as to what damages (if any) have been sustained by Harvela by reason of the stay ordered by Peter Gibson J on 29 November 1983 or by reason of the undertakings then given by Sir Leonard to Peter Gibson J or by reason of such stay and such undertakings (E) an inquiry as between Royal Jersey and Sir Leonard as to what damages (if any) have been sustained by Royal Jersey by reason of the stay ordered by Peter Gibson J on 29 November 1983 or by reason of the undertakings then given by Royal Jersey to Peter Gibson J or by reason of such stay and such undertakings(6) that Sir Leonard do pay to Harvela its costs of the claim and counterclaim in the courts below to be taxed by the taxing master if not agreed and the costs incurred by Harvela in respect of the said appeal to this House the amount of such last-mentioned costs to be certified by the Clerk of the Parliaments if not agreed and do pay to Royal Jersey and the Royal Trust Co of Canada (hereinafter referred to as 'Royal London') four-fifths of their costs of the claim and counterclaim in the courts below and in this House to be taxed and certified as aforesaid if not agreed(7) that Harvela do pay to Royal London one-fifth of their costs of the claim and counterclaim in the courts below and in this House to be taxed and certified as aforesaid if not agreed(8) that Harvela be and is hereby discharged from further compliance with the undertakings given by it to Her Majesty's Court of Appeal and that all sums (including interest) standing to the credit of joint deposit bank accounts opened pursuant to those undertakings be paid forthwith to Harvela and that Sir Leonard Royal Jersey and Royal London do respectively sign such documents and do all such acts as may be required to procure such payments as aforesaid and the parties are to be at liberty to apply to the High Court.