OTIS VEHICLE RENTALS LIMITED (FORMERLY BRANDRICK HIRE (BIRMINGHAM) LTD) v CICELEY COMMERCIALS LIMITED [2002] EWCA Civ 1064

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
BIRMINGHAM DISTRICT REGISTRY
MERCANTILE LIST
(HER HONOUR JUDGE KIRKHAM)
[2002] EWCA Civ 1064Case No Case No: A3/2001/2328Venue Royal Courts of Justice, Strand,, London, WC2A 2LL
Between
OTIS VEHICLE RENTALS LIMITED (FORMERLY BRANDRICK HIRE (BIRMINGHAM) LTD)Claimant/ RespondentCICELEY COMMERCIALS LIMITEDAppellant/ Defendant
Before
Lord Justice Peter GibsonLord Justice PotterSir Murray Stuart-SmithMichael Johnson (instructed by Roebucks, Blackburn) for the appellant/defendantThe claimant/respondent did not appearDate 12 July 2002

Lord Justice Potter:

INTRODUCTION

[1]This is an appeal by the defendants, Ciceley Commercials Limited, from the judgment of HH Judge Kirkham sitting in the Birmingham Mercantile Court delivered on 16 October 2001 in favour of the claimants, Otis Vehicle Rentals Limited (now called Butlergrove Limited) for the sum of £362,104.83 with costs, to be assessed on the indemnity basis..[2]The defendants business is that of selling commercial vehicles and, at all material times, the claimants were engaged in the business of selling and letting such vehicles. The judgment sum represented the total “buy-back” price (together with interest thereon) agreed to be paid by the defendants to the claimants in respect of 14 Mercedes Benz tractor units (“the vehicles”) which the claimants had ‘purchased’ from the defendants three years earlier in November 1994 for use in their business, but which the defendants, wrongly refused to buy-back as agreed. I have placed the word ‘purchased’ in quotation marks because the original sale was in fact effected to Mercedes Benz Finance Limited (MBFL), a finance company which simultaneously let the vehicles to the claimants under 14 hire purchase agreements. Those agreements all had commencement dates between 31 October 1994 and 7 November 1994, the final rental payments being due three years after the commencement dates.[3]Following issue of proceedings by the claimants in November 1997 hard upon the defendants refusal to buy back the vehicles, the defendants contested liability until shortly before trial. However, by letter of 25 September 2001 they conceded liability and indicated that the proceedings would be defended as to quantum only. In their skeleton argument before the judge, they indicated that in that respect they disputed(a) the primary basis on which the claimants claimed to be compensated, namely by claiming in debt for the buy-back price, rather than in damages for breach of contract and(b) the quantification of the claimants alternative claim in damages.[4]The facts and matters in respect of which liability was admitted were pleaded in the Amended Points of Claim dated 3 October 2000 as follows. “4. In the course of the oral negotiations from about July 1994 between ... the Plaintiffs and ... the Defendants, it was agreed: a) that if the Plaintiffs entered into a hire purchase agreement with a finance company in respect of the said Tractor Units (for the purpose of which the Defendants would sell the Tractor Units to the finance company) the Defendants would repurchase the said vehicles from the Plaintiffs at the Plaintiffs’ option after either two or three years; b) that the repurchase price would be either 60% or 45% of the purchase price of each vehicle depending on whether it was after two or three years; c) that the said sums would be paid either directly to the Plaintiffs or to such Finance Company as selected by the Plaintiffs for the transaction as the final payment under any such agreement with the Finance Company. 5. The Defendants confirmed, inter alia, the above in a fax dated 4 th October 1994 and a letter dated 15 th December 1994 to the Plaintiffs ... (“the buy-back agreement”). 6. In or about November 1994 the Plaintiff entered into a hire purchase agreements with Mercedes Benz Finance Limited (“MBF”) in respect of each of the said fourteen Tractor Units and the Defendants sold the said fourteen Tractor Units to MBF for the purpose of those hire purchase agreements ..... The buy-back agreement thereon came into effect and became binding and the price thereunder [in respect of a buy-back after three years] was £19,153.53 for each Tractor Unit. 7. On a proper construction, the buy-back agreement was, on the exercise of the Plaintiffs’ option, an agreement to sell the said Tractor Units. 8. By letter dated 10 th October 1997 the Plaintiffs gave the Defendants notice of intention to raise invoices for payment by the Defendants under the buy-back agreement in respect of all fourteen of the said Tractor Units. On a proper construction the letter ... constituted the exercise of the Plaintiffs’ option under the buy back agreement. 9. By letter dated 13 th October 1997 ... the Defendants denied that the Tractor Units had ever been the subject of a buy-back agreement ..... 11. The Defendants were and are in breach of the agreement with Plaintiffs as aforesaid. The Plaintiffs remain ready and willing to deliver the Tractor Units to the Defendants and the Defendants are indebted to the Plaintiffs for the price of the Tractor Units as hereinafter pleaded ... 13. The Plaintiffs are entitled to and claim interest on the said sum of £315,075.57, alternatively on the damages claimed below, at such rate and for such period as shall be just pursuant Section 35A Supreme Court Act 1981. 14. Further or alternatively to its claim for the price of the Tractor Units the Claimants have suffered loss and damage and are entitled to damages in respect thereof. Particulars of loss are set out in the schedule served herewith. AND the Claimants claim:(1) £315,075.57 and/or(2) Damages.”[5]It is pertinent to note that, whereas it was pleaded in paragraph 11 that the claimants remained ready and willing to deliver the vehicles to the defendants, by the time of trial all fourteen vehicles had in fact been disposed of elsewhere by the claimants during the period June 1999 to April 2000.[6]So far as those disposals were concerned, the judge made various findings as to the reasons why, and circumstances in which, they were made as follows.(1) Under each finance agreement with MBFL there was provision for comparatively small monthly payments to be made over the period of the agreement following the initial payment, with a much larger final payment (known in the trade as a ‘balloon’ payment). Such provision was a common form of financing in the vehicle trade, when provided in tandem with a buy-back arrangement between a dealer/seller such as the defendants and vehicle hire operators such as the claimants, the overall intention being that the buy-back price should be available to the operator as the source of funds for the final balloon payment under the finance agreement.(2) When the claimants sought to implement the buy-back provision in 1997, they were not in a financial position to make the balloon payments to MBFL (which were due between 31 st October and 7 th November 1997) unless the buy-back agreement was honoured. On the defendants’ refusal to honour the buy-back agreement, the claimants were obliged to delay the balloon payments to MBFL, and they therefore issued proceedings against the defendants on 21 November 1997 in order to obtain payment by way of summary judgment. MBFL threatened to repossess the vehicles in default of the balloon payments. It was a term of the finance agreement to which each vehicle was subject, and which MBFL threatened to invoke, that if the claimants were in breach of any agreement with MBFL other than the subject agreement the claimants were deemed also to be in breach of the subject agreement. The defendants were thus vulnerable to repossession of all fourteen of the vehicles as a result of the defendants’ failure to honour the buy-back agreement.(3) At that time, the claimants’ bankers were not willing to extend their overdraft facilities to enable the balloon payments to be made and the claimants did not have sufficient cash reserves for such purpose.(4) It would have been commercially disastrous for the claimants to permit MBFL to repossess the units. Not only would it damage their financial credit and reputation, but the market was at that stage in a depressed state so that MBFL, on repossession, would have obtained only small sums for the vehicles and the defendants would still have been liable to MBFL for any shortfall.(5) In the light of these considerations, the defendants negotiated with MBFL a twelve months extension of 13 of the 14 finance agreements by re-financing the balloon payments payable in respect of each vehicle. They then continued to hire out the vehicles over that period with a view to later sale in more favourable conditions. As already indicated, such sales took place at varying times between June 1999 and April 2000. THE ALTERNATIVE CLAIMS[7]Before the judge, in accordance with the pleading to which I have referred, the claimants advanced their primary case in debt for the agreed buy-back price, claiming in the alternative damages as set out in the Schedule attached to the pleading. It is not necessary at this stage to refer in detail to the basis of the claim in respect of the claimants’ actual losses because, in the claimants’ skeleton argument dated 31 October 2001 lodged in respect of this appeal, it was accepted that, should the defendants succeed in their appeal in relation to the claimants’ primary claim in debt, the appropriate award would be one of damages in the sum of £150,003.91, that being the figure which the judge had found to be the amount of the claimants’ actual loss, having considered the schedule and heard the expert evidence. PRICE OR DAMAGES[8]The principal issue on this appeal is whether or not the judge was correct to hold that the defendants were entitled to payment of the buy-back price. It is clear to me that she was not.[9]At this point, I make clear that the court has not had the benefit of argument in support of the judge’s decision, because, following the failure of the claimants to comply with an earlier order of this court (see further at paragraphs 21-24 below), they are debarred from appearing before us to resist this appeal. Nonetheless, we have the benefit of the claimants’ skeleton argument earlier mentioned and have no doubt that the submissions of Mr Johnson for the defendants are correct as a matter of basic Sale of Goods law.[10]There were two reasons for the judge’s decision, as shortly stated in her judgment. First, her analysis of the nature of the buy-back agreement; second, her view that the facts of the case fell within s.49(2) of the Sale of Goods Act 1979 which provides that:
“Where, under a contract of sale, the price is payable on a day certain irrespective of delivery and the buyer wrongfully neglects or refuses to pay such price, the seller may maintain an action for the price, although the property in the goods has not passed and the goods have not been appropriated to the contract.”
[11]As to the judge’s analysis of the nature of the buy-back agreement, she stated:
“This was not simply a contract for the sale and purchase of units, as indeed Mr Johnson for the defendant accepted. The position here was a commercial arrangement, which was common in this industry sector: the claimant was in a position where he needed to sell units, and the defendant clearly wanted to buy, units in order to run its business. The claimant knew that the defendant, as purchaser, was relying on finance from a third party to enable it to finance the purchase of the vehicles. The claimant knew that the basis of that financial arrangement with a third party was commonly that there would be a series of comparatively small payments with a substantial final payment due at the end of the term. The defendant knew that the arrangement made with the claimant here, as was commonly the case, was such that the buy-back payment would ensure that money would be available to the claimant in order to meet the balloon payment when it fell due. Mr Johnson described this as being an arrangement for an indemnity and indeed that is the truth of the arrangement. The claimant knew that it had the benefit of that indemnity; without the certainty of that, the claimant was not in a position where it could comfortably enter into the finance arrangement. The claimant and defendant here agreed that a definite sum of money, 45 per cent of the purchase price, that is £19,153 per unit would be paid by the defendant to the claimant on a specific date .... either two years or three years after the agreement started at the claimant’s election. The claimant’s case is that this is a claim in debt and it is entitled to payment of the sum agreed.”
She added a little later:
“The buy-back arrangement to enable the balloon payment to be made was at the very heart of the arrangement the parties had made. It is indeed what makes the whole arrangement work.”
[12]The judge then went on to quote from the speech of Lord Keith in White and Carter (Councils) Limited –v- McGregor [1962] AC 413 at 437 in which he stated in respect of the remedies provided to a seller under the Sale of Goods Act 1893 that (in the absence of express agreement) an action for the price arises only in two cases. The first he identified as the position where the property in the goods has passed to the buyer, i.e. as now provided for in s.49(1) of the 1979 Act. Lord Keith went on to state:
“The only other case is where parties have contracted for payment on a day certain, irrespective of delivery or the passing of property. This is a clear case of a contractual debt unconditioned by any question of performance by the other party.” i.e the position now provided for in s.49(2) of the 1979 Act. HH Judge Kirkham continued: “I have no hesitation in concluding that the claimant has made out entitlement under s.49(2) of the Sale of Goods Act 1979 to the agreed price for the fourteen units. The agreed sum is, in my judgment, the appropriate way to approach quantum in this case, and I therefore conclude that the claimant is entitled to payment of £268,146.90.”
[13]Having concluded that the claimants were entitled to payment of the price, the judge went on to consider a point raised in argument before her by the defendants, namely that, even if the claimants were prima facie entitled to the price, in seeking to recover on that basis they were seeking to enforce specific performance of the contract in a situation where damages in a lower sum were the adequate remedy and that, in such circumstances, the court should decline the remedy primarily claimed in favour of the alternative remedy, namely that of damages: c.f. the observations of Lord Denning MR in Attica Sea Carriers Corporation –v- Ferrostaal Poseidon Bulk Reederei Gmbh [1976] 1 Lloyd’s Rep 250 at 255 and of Lloyd J in Clea Shipping Corporation –v- Bulk Oil International Limited [1984] 1 All ER 129 at 137. The judge held that, in the light of the defendants’ conduct when called on to honour their clear obligations and because of their policy of non-cooperation during the proceedings, including admitting liability only at the last moment, it would not be equitable to deny the claimants their statutory right (as she had found it to be) under s.49(2) of the 1979 Act.[14]The defendants’ grounds of appeal in respect of which permission was granted were that(1) the judge was wrong to have given judgment for the price under the buy-back agreement instead of making an award of damages;(2) even if the claimants were prima facie entitled to the price under s.49(2), the judge should have exercised the court’s equitable power to award relief by way of damages instead of judgment for the price. (Permission was refused in respect of a third ground of appeal which sought to reverse the judge’s order that the claimants’ costs be assessed on the indemnity basis, without prejudice to the defendants’ right to renew their application to this court at the hearing of the appeal.)[15]In my view the matter turns entirely upon ground (1) for reasons which can be shortly stated. Although, no doubt the parties intended that the buy-back price should be utilised by the claimants as the source of funds for the balloon payment in relation to each hire purchase agreement, and in that broad sense it might be described as ‘an arrangement for an indemnity’, that was not its legal nature either in substance or upon a true analysis of the contract. Both parties were agreed that its nature was that of a contract of sale whereby, so far as the defendants were concerned, the price payable by the defendants upon the buy-back was to be paid against delivery of the vehicles back to the defendants which would be made or procured by the claimants. In such a case, the mechanics would involve payment of the buy-back price by the defendants, either to the claimants or to MBFL on their behalf, against an arranged re-delivery of the vehicle to the defendants, coupled with a relinquishment of ownership by the claimants and/or MBFL.[16]That being so, the agreement that a buy-back at the price agreed would take place three years after the date of the original sale did not in my view amount to an agreement that the price was payable on a day certain irrespective of delivery . The commercial reality was that, had the buy-back proceeded, the payment, paperwork and arrangements for delivery of the vehicle would all have been co-ordinated and dated so as to have simultaneous effect as a matter of routine co-operation between the claimants, the defendants and MBFL. Even if that be wrong, however, by the time the proceedings were heard there was a fatal obstacle to the claimants obtaining judgment for the price. It is clear from long-established authority that, even where the conditions prescribed in s.49(2) exist, if the goods agreed to be sold have not been delivered to the buyer, the seller’s entitlement to sue for the price nonetheless depends upon his continuing willingness and ability to deliver the goods to the buyer: see Maclean –v- Dunn and Watkins (1828) 6 LJ (O.S.) CP 184 and Benjamin’s Sale of Goods (5 th ed) at para 16-001. When the matter was before the judge, the claimants had long since disposed of the vehicles and put it out of their power to tender them against payment of the buy-back price. In those circumstances the only claim could be one for damages.[17]That being so, it is unnecessary to enter upon the difficult territory required to be explored, both as a matter of principle and on the facts of the case, as to whether or not a court can or should in its discretion decline to permit claimants to pursue a remedy for the price to which they are prima facie entitled, because damages would be an adequate remedy to compensate them for the defendants’ breach/repudiation of the buy-back agreement.[18]Accordingly, I would allow the appeal under ground 1. INTEREST[19]Because the judge made her award in debt, she dealt with the question of interest accordingly. She made no observations upon the appropriate rate of interest if damages were to be awarded. In this respect, the damages sustained by the claimants were claimed on the basis of loss incurred over a period of time in relation to vehicles which had been retained and operated as part of the claimants’ business prior to their eventual sale. Given that it is now necessary to substitute for the judgment sum awarded by the judge, a lesser and different sum by way of damages, the question of interest arises, taking into account the differing dates on which various items and heads of loss were sustained. We have heard submissions from Mr Johnson as to the appropriate method of calculating the interest to be awarded(a) as a matter of principle and(b) in the light of events occurring between the date of judgment and the hearing before this court.[20]So far as(a) is concerned, the sum advanced in the claimants’ skeleton argument in the appeal as the appropriate figure for the total interest due on the damages of £150,003.91 as at the date of the judge’s order was £27,403.14 said to be calculated on the basis of the figures set out in the claimants’ Schedule of Damage, adjusted to exclude items disallowed by the judge on the basis of the expert evidence, such interest being calculated at the rate of 8% per annum. However, on the basis of a revised calculation placed before us by Mr Johnson containing the figures calculated by the defendants’ accountant on the basis of the material in the Schedule, we are satisfied that the proper figure, calculated at 8% per annum, is one of £20,994.00, subject to the matters argued under(b) to which I now turn.[21]Following judgment, the defendants applied to this court for permission to appeal therefrom and for a stay of judgment in respect of the excess of the judgment sum over the sum calculated to be due if the claimants were entitled to an award of damages only. Before the application was dealt with, on 16 November 2001, the Sheriff’s Officer attended at the defendants’ premises at the behest of the claimants and, in the face of the threat of immediate seizure of its goods, the defendants were obliged to pay the full amount of the judgment, plus the Sheriff’s fees. The Sheriff retained the judgment debt for 14 days, but released it to the claimants on 3 December 2001. On 7 December, Clarke LJ dealt with the claimants’ application on paper, granting permission to appeal on the grounds already mentioned and granting a stay in respect of the sum of £184,160.45 of the judgment debt. He directed that, if the Sheriff still held what he had received, he should retain that specified sum. However, the sum had already come into the claimants’ hands and they failed to account for it to the defendants, who made an application to this court for payment of it. The claimants countered with an application to set aside the order for the stay on the grounds that execution had already been levied and was complete and there was no evidence put forward on behalf of the defendants to support the application for a stay.[22]On 30 January 2002, Clarke LJ ordered the claimants to pay a varied sum of £184,696.98 into court in order to secure the position pending the hearing of the appeal, there being, as he put it, ‘a hint of insolvency’ on both sides. The claimants failed to comply with that order and, in the light of circumstances which it is not necessary to detail in this judgment, the defendants applied to the court for an order of sequestration and/or committal of the claimants’ directors for contempt, which came before this court on 22 March 2002. Because the defendants had in a number of respects failed to comply with the requirements of Order 45 and the Practice Direction to Order 52 of the Rules of the Supreme Court as incorporated into the Civil Procedure Rules, no immediate order for sequestration or committal could be made. However, the court ordered that, unless the claimants by 3 April 2002 paid the sum of £184,696.98 into court, they should be debarred from appearing at the hearing of the appeal. Since that order has not been obeyed the claimants, as already indicated, have not appeared on the appeal.[23]In the absence of any satisfactory explanation, which has not been afforded to the court, and in the light of the clear penal notice attached to the order of the court, it may well be that the claimants are in contempt of court in respect of their disobedience to that order. Further, in the light of my judgment above, the insistence of the claimants upon rapid execution and their subsequent refusal to repay to the defendants or into court the sum of £184,000-odd, the claimants have to that extent enjoyed the use of money of the defendants to which they were never entitled between 16 November 2001 and the date of this judgment, which at a rate of 8% per annum amounts to a loss by way of interest of just over £5,500. In addition, the defendants were obliged to pay to the Sheriff, on 16 November 2001, Sheriff’s Fees in a situation where they have never disputed, and would have paid if demanded, a judgment sum limited to the damages award of £150,004 plus interest at 8%, thus avoiding any execution by the Sheriff.[24]It appears that, by reason of measures taken by their directors since judgment, the claimants are now a shell company without assets. There is thus every reason to suppose that the defendants will be deprived of the opportunity to recover from the claimants substantial monies to which on any view they are entitled, the total of which exceeds the sum otherwise due by way of interest to the claimants. In those circumstances, Mr Johnson has submitted and I would accept, that an award by this court of interest on the claimants’ damages would result in a considerable injustice to the defendants. Subject to one proviso, therefore, I would decline to make any award of interest upon the damages assessed due by the judge, bearing in mind that such award is ultimately a matter for the court’s discretion under s.35A of The Supreme Court Act 1981 . That proviso arises because, in making his submissions that this court should withhold any award of interest, Mr Johnson appears to have overlooked (as did the court when receiving his submissions) that, in the defendants’ notice of appeal, the claimants’ right to interest on their claim for damages at a commercial rate is conceded. In those circumstances, it would seem to me that, in order to regularise the position, the defendants should, prior to the handing down of this judgment, make application to amend their notice of appeal so as to remove such concession and to reflect the thrust of Mr Johnson’s submissions to us. COSTS[25]The judge’s award of costs against the defendants was one of costs to be assessed on the indemnity basis. This was on the basis that, notwithstanding an early finding by the District Judge on the claimants’ application for summary judgment that there was clear liability on the part of the defendants, they successfully appealed to the judge on the grounds that there was an arguable defence based on the denial of the authority of the defendants’ national fleet sales manager to enter into the buy-back agreement. They persisted in that stance until two weeks before trial when they indicated that liability would not be contested. The judge said:
“Rules require the parties to behave one to another in a spirit of co-operation so as to keep costs to a minimum, and persisting in a position right up to the eve of trial where liability was said to be in dispute and then dropping at the last moment is not what one expects of parties these days, and for the other reasons which I have set out in my judgment earlier with respect to the conduct of the defendants in the immediate period following the crystallising, as it were, of the buy-back obligations.”
[26]One can readily see from matters referred to earlier in her judgment when dealing with liability, as well as in the passage which I have quoted, that the judge took an adverse view of the defendants’ commercial conduct so far as their denial of liability was concerned. However, that said, from the outset the defendants were always entitled, and in fact were correct, to challenge the basis upon which compensation was claimed. That issue surfaced early in the proceedings and has ultimately been resolved in favour of the defendants. On that basis, and upon an examination of the history, I have been persuaded by Mr Johnson that, even if the defendants behaved badly in relation to the question of liability, they did not take any step open to obvious criticism insofar as the dispute over ‘price or damages’ was concerned. Further, a number of points taken on quantum in respect of the claimants’ alternative claim for damages were resolved in favour of the defendants. In refusing leave to appeal on ground 3 of the claimants’ application, Clarke LJ directed that, if the appellants wished to renew their application in that respect they should do so at the hearing of the appeal. Mr Johnson took that course before us and, in doing so, persuaded me (as I have indicated) that there was a distinction to be drawn between the defendants’ conduct in relation to liability and their decision to contest the issue of damages. That being so, I would grant permission to appeal on Ground 3. I would allow the appeal upon that ground to the extent of substituting for the judge’s order that the claimants costs of the action be assessed on the indemnity basis, an order that the costs be assessed upon that basis up to the date of the defendants’ admission of liability, but upon the standard basis thereafter. CONCLUSION[27]For the reasons I have stated, upon application to amend the grounds of appeal as suggested in paragraph 24 above, I would allow the appeal and substitute for the order made by the judge, an order that the claimants have judgment for the sum of £150,003.91 damages with costs to be assessed on an indemnity basis up to the date of the defendants’ admission of liability and thereafter upon the standard basis. I would further order that the claimants pay the defendants' costs of this appeal to be assessed on the standard basis if not agreed.

Lord Justice Peter Gibson:

[28]I agree

Order

Appeal allowed. The court having received an application in writing to amend the grounds of appeal as invited in paragraph 27 of the judgment:(1) leave to the appellants to append their Notice of Appeal as set out in paragraph 4.1, 4.2 and 4.3 of counsel’s application in writing dated 10 th July 2002;(2) order in accordance with paragraph 27 of the written judgment. (Order does not form part of the approved judment)

Cited in 6 later judgments