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||Neutral Citation Number:  EWCA Civ 839
||Case No: A3/2010/2395
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
MANCHESTER DISTRICT REGISTRY
HIS HONOUR JUDGE STEPHEN DAVIES
||Royal Courts of Justice
Strand, London, WC2A 2LL
||26 July 2011
B e f o r e :
LORD JUSTICE RIX
LORD JUSTICE LLOYD
LORD JUSTICE STANLEY BURNTON
Paul Chaisty Q.C. and Andrew Grantham (instructed by Pannone LLP) for the Appellant
Peter de Verneuil Smith (instructed by Clyde & Co) for the Respondent
Hearing date: 5 July 2011
HTML VERSION OF JUDGMENT
Crown Copyright ©
See: Order and Reasons for order
Lord Justice Lloyd:
- This appeal is brought from an order of His Honour Judge Stephen Davies, made on 24 September 2010 in the Mercantile Court in Manchester. He had before him an agreed list of issues concerning liability in this action. He determined such of them as appeared to him to arise. Most of them are not in question on the appeal. Following further argument in consequence of his decision on these issues, he granted summary judgment to the Defendant for payment of a sum in respect of certain invoices.
- With permission granted, first, on a limited basis on the papers by Sir Richard Buxton and then, on a slightly less limited basis, on an oral renewal before Longmore LJ, the Claimant challenges the judge's decision of some of the preliminary issues, and also the order for summary judgment. By a Respondent's Notice, with permission to appeal granted also by Sir Richard Buxton, the respondent challenges the judge's decision on two others of the preliminary issues.
- DRL, the Claimant, is a retail supplier of white goods, trading via the internet. It supplies such goods both under its own name and also on behalf of well known high street retailers such as Sainsburys. Not only does it not have its own retail premises to which customers can pay real, as distinct from virtual, visits; it also does not itself hold any stock of the goods which it sells. Instead it contracts with a supplier of what are known as logistics services, who takes delivery of goods supplied by manufacturers against orders to be fulfilled on behalf of DRL, and who undertakes the task of delivery to retail customers.
- In 2005 DRL entered into a contract for this purpose with Lane Group plc. In 2006 the Defendant, Wincanton Group Ltd, acquired most of the shares in Lane Group, and proceeded to integrate into its own business that of Lane Group. It is accepted that Wincanton became bound by the 2005 agreement with DRL, no doubt by a process of novation. (In general, therefore, I will refer to this agreement as if Wincanton had always been the contracting party.) In 2007 a new agreement was reached between DRL and Wincanton, which varied the 2005 agreement in certain respects. It had been hoped that the commercial relationship between the parties would improve as a result of this, but it did not. When it was near breaking point early in 2008 a further agreement was entered into, designed to provide for an orderly termination of the relationship. That aim was not achieved, and the parties parted company on 28 February 2008 in acrimony, only a day before the agreement (as varied) would have come to an end in any event.
The issues on the appeal
- One of the issues between the parties is whether the contract came to an end on the acceptance by one party of a repudiation by the other, and if so which party brought it to an end by such acceptance. The judge held that DRL repudiated the agreement by refusing to pay a sum which was due by close of business on 28 February 2008, and that Wincanton accepted that repudiation in correspondence. DRL contends that Wincanton had repudiated first by refusing to supply goods under the agreement unless DRL paid an additional sum which was undoubtedly not due, and that it accepted that repudiation before the time came for payment of the sum which undoubtedly was to fall due for payment later that day. That dispute arises under issues 17 and 17A in the agreed list.
- In the nature of things, sometimes a customer asserted, after delivery, that there was damage to or a defect in the goods supplied. The agreement between the parties included provisions allocating the financial responsibility for such events. One issue which the judge had to decide was what the significance was of the customer having signed a Proof of Delivery (POD) document, in a form agreed between the parties. Issues 2d and 13 related to this question.
- The 2005 agreement between the parties incorporated the Road Haulage Association's Conditions of Carriage 1998. Those conditions include a requirement of notification of damage to the goods delivered within 7 days after delivery to the customer, subject to a proviso allowing later notification if it was not reasonably possible to notify within time, and also a limitation period of one year after the delivery. It is in dispute whether these conditions applied: the judge held that the first did not but that the second did. These points arise under issues 5c and 5d. In addition the RHA conditions provide for a general lien, a right which Wincanton professed to exercise, selling the goods and applying the proceeds towards sums claimed to be due under the 2007 agreement. The correctness of that course arises as an issue on the summary judgment application.
- The 2005 agreement included several provisions relevant to the appeal. The agreement recorded DRL's appointment of Lane Group as "its strategic partner for the home delivery of white goods" throughout England, Scotland and Wales, noting that agreed IT solutions were to be implemented on agreed time scales. I quote the presently most relevant provisions of clause 2:
"2. LG [Lane Group] will provide DRL with logistics services including but not limited to:
(iii) the delivery of such consignments of DRL's goods to the customer addresses specified by DRL within 4 hour time slots confirmed to customers on the day preceding delivery and re-confirmed on the delivery day;
(v) all deliveries to be carried out on 2-man delivery vehicles, with the minimum service to include placing the appliance in the room chosen by the customer; product unpacking and checking; packaging return and disposal;
(viii) scanning of all goods from the delivery vehicles into the customer's home and the automatic updating of delivery progress during the delivery day (subject to systems development as agreed between the parties);
(ix) obtaining a signed proof of delivery document from each customer prior to leaving the customer's premises;
(x) provision of proof of delivery information to DRL by 10:00 hours on the morning of the day following the day of delivery, with hard copy proof of delivery documentation to follow within 5 working days of receipt of DRL's written request;"
- Clauses 7, 11 and 13 are also of particular relevance:
"7. Invoices will be raised weekly by LG and will be paid by DRL without deduction, set-off or counterclaim, other than as provided below, within 21 days of the date of invoice. DRL will be entitled to withhold payment of any sum subject to a bona-fide dispute provided that all other sums not subject to dispute are paid in accordance with the terms stated above.
11. The Services will be provided in accordance with the Road Haulage Association Limited Conditions of Carriage 1998 and the United Kingdom Warehousing Association Conditions of Contract as applicable and the liability of LG in respect of loss or damage to DRL's products or otherwise in connection with the Services will be subject always to the limitations and exclusions specified therein. LG will maintain insurance for loss or damage to DRL's products in accordance with the provisions of this paragraph 11.
13. LG will accept liability (in accordance with the further provisions of this paragraph) for any product damaged whilst in the control or possession of LG or reported damaged after delivery unless it can demonstrate that the product was unpacked and checked by the customer and the customer has signed and fully completed the relevant POD or that the product was not unpacked and checked at the specific request of the customer. Any such damaged products will be returned to Rugby [Wincanton's central depot] and DRL will use its best endeavours to secure the return of as high a percentage as possible to the supplier. Any remaining damaged product will be sold off by agreement between the parties having used their best endeavours to secure the highest price available. LG will reimburse to DRL the net cost incurred by DRL, such cost comprising the difference between the value of the sold products and the cost of replacing these. …"
- The 2007 agreement varied the previous agreement in certain respects but otherwise continued it as between DRL and Wincanton. The relevant variations were as follows:
"21 days will be replaced with 30 days
A weekly invoice will be raised by Wincanton to DRL. The content of the invoice will be agreed and signed off by relevant members of staff for both Wincanton and DRL.
The content will be:
Weekly delivery/service charges
Storage charges (where applicable)
Damage liability (as clause 13)
Stock loss liability (clause 15)
Doorstep damage allowance (clause 12)
The invoice will be raised and explicitly disclose each item above. Ownership of damaged product included on the invoice will pass to Wincanton."
replaced entirely as follows:
"Wincanton accept liability for any product damaged whilst under its control which commences with the receipt of goods into its warehouse and ends upon receipt of a customer signature (either hard or soft copy) to accept the product undamaged or the return of those products to the warehouse.
Wincanton shall accept liability for loss on product disposals as follows:
Wincanton Fault (as described by fault failure reasons as listed in Appendix 2):
DRL will charge Wincanton (at cost as supported by up to date purchase price information from DRL). Wincanton will dispose of the goods and will retain any revenue they realise from the disposal.
DRL Fault (as described by no fault failure reasons as listed in Appendix 2):
DRL will charge Wincanton (at 37.5% of cost as supported by up to date purchase price information from DRL). Wincanton will dispose of the goods and will retain any revenue they realise from the disposal.
Any collected goods then disposed:
Wincanton will dispose of the goods and DRL will charge Wincanton an amount equivalent to the revenue realised from the disposal."
"Wincanton will record all stages of stock transaction from initial receipt of goods to customer signature. Stock will be deemed lost if Wincanton are unable to trace the product within three days of any gap in its transaction history being detected. Wincanton will reconcile stock transaction history on a weekly basis but will provide scan information on a daily basis to DRL. Wincanton accept liability for lost stock at cost (as defined under clause 13 above).
Previously untraced stock, if subsequently located and in good condition, will be administered as excess stock. DRL will attempt to sell the stock to their customers and will reimburse Wincanton at full cost once sold."
- An appendix to the agreement set out a series of codes to be used by Wincanton's drivers so as to record the outcome of a failed delivery and the reason for the failure. These were relevant both to clause 13, set out above, and also to clause 10. By that clause Wincanton was to charge for all successful deliveries, including first time re-deliveries arising from a previous Wincanton fault failure, subject to Wincanton's delivery success rate being at least 98% for the particular week. Their success rate was to be calculated by reference to the outcome of deliveries as recorded by the use of the codes. If Wincanton's delivery success rate was less than 98%, then first time redeliveries after a previous Wincanton-fault failed delivery were to be charged at 50% of the agreed rate.
- The 2008 agreement was of a different kind, since it was intended to defuse a situation in which the parties were seriously at odds, and to provide for an orderly termination of the relationship. At that time Wincanton claimed that large sums were owing to it, on non-payment of which it threatened to terminate the agreement. DRL, for its part, disputed the amount claimed, and asserted cross-claims to be set-off against whatever was otherwise payable, such that there was nothing due in respect of historic supplies. DRL agreed to pay Wincanton £1 million at once, in return for which Wincanton agreed to continue to supply the services, against prompt payment, without any set-off, of invoices for deliveries made since 19 January 2008. The agreement also recognised that once the temporary arrangements were concluded, the parties would go back to their previous positions, Wincanton asserting its claims to payment of the earlier invoices and DRL asserting its cross-claims and set-off. The parties' respective positions were merely suspended while the temporary arrangements under the 2008 agreement lasted.
- The relevant provisions were as follows:
"1. In consideration of you [i.e. Wincanton] withdrawing your threat of summary termination DRL will pay to Wincanton (to be received in cleared funds by no later than close of business on Wednesday 23rd January 2008) the sum of £1,000,000 on account of monies which may be owing by DRL to Wincanton;
2. For so long as the Agreement remains in force DRL will only pay Wincanton for deliveries made since 19th January 2008 and will pay Wincanton the sums properly invoiced for such deliveries (without set off or deduction) by no later than close of business on the second business day following receipt of the invoice properly raised in respect of such deliveries;
3. The payments to be made by DRL under the above two paragraphs are made without prejudice to its rights under the Agreement and do not signify that DRL admits liability to make them;
4. Wincanton will not, until the date upon which any notice of termination properly served by Wincanton in accordance with the Agreement (as amended by the terms of this letter) expires, serve notice of termination on the grounds of the failure by DRL to pay any sums invoiced in relation to deliveries made before 19th January 2008 (i.e. until agreement or termination DRL will henceforth only pay for deliveries made since 19th January 2008). Wincanton's rights to claim for deliveries made before 19th January 2008 will not be adversely affected i.e. after termination it may recommence its claims in relation to such deliveries.
5. The parties will conduct negotiations for the consensual termination of the Agreement as soon as is reasonably practicable. For so long as DRL complies with its obligations under the Agreement and those set out in this letter, Wincanton will endeavour to provide assistance to DRL in effecting the transition of the services to a third party."
- The Agreement (meaning the overall agreement, not just the 2008 agreement) could be terminated by not less than 28 days' notice, served not before 26 January.
- I will need to set out in some detail the events of 26 to 28 February 2008 on which the issue about repudiation turns. So far as the other issues are concerned, I gratefully quote paragraph 22 of the judge's judgment in which he explained the significance of the "unpack and inspect" process which, by virtue of clause 2(v) of the 2005 agreement, formed part of the minimum service to be provided:
"It is common ground that, in addition to the benefit to the customer conferred by these activities, there was a real benefit to DRL because unpack and inspect, if done properly, significantly reduced the incidence of customers only discovering damage to a product when they came to unpack it after the delivery driver had left. Avoiding this not only avoided the administrative and logistical costs of collection and delivery of a replacement, but also avoided customer dissatisfaction. It also reduced the risk of DRL becoming embroiled in a dispute with the customer and Lane as to whether the damage was sustained in transit or on delivery (in which case it would prima facie be Lane's responsibility) or subsequently whilst left with the customer (in which case it would prima facie be the latter's responsibility). Whilst there was also a benefit to Lane in avoiding such disputes, performing unpack and inspect for each delivery also involved a potential element of disadvantage to Lane or to its drivers in that it extended the 'dwell time' for each delivery. This therefore reduced the number of deliveries which delivery drivers, working conscientiously, could make each day, with a potential impact on operational efficiency, but also carried with it an inherent risk of abuse by unscrupulous or hard-pressed delivery drivers who, either pressed for time or keen to finish the working day as quickly as possible, were tempted into what was known as 'dump and run' whereby they would leave the product with the customer without properly performing the unpack and inspect obligation."
- The POD form was to be used not only in order to prove the fact of delivery but also to show compliance with the "unpack and inspect" obligation. The form went through three agreed versions, to emphasise, increasingly, the importance of the process both to delivery drivers and to customers. The IT system was developed in such a way that DRL would transmit each new delivery request to Wincanton by electronic means, and would have online access to Wincanton's system (which was updated regularly, about every 15 minutes) so as to see the progress and status of each delivery, with scanned electronic copies of the relevant POD forms. If DRL did not accept what Wincanton had recorded, for example as the reason for a failure of delivery, it could transmit its objection electronically.
- If a delivery failed because the goods were inspected and found to be damaged, and therefore not accepted by the customer, then either they would be returned to the manufacturer or (if it could not be said to be manufacturing damage) it would be sold off to "jobbers" for whatever price could be achieved. Wincanton was liable for the difference between the replacement cost and the sale price achieved, under condition 13 of the 2005 agreement. That position changed under the 2007 agreement, as appears from the terms quoted above, and as I will describe when I come to deal with the particular issue.
- The facts relevant to the repudiation issue, under the 2008 agreement, are as follows. DRL needed to make arrangements to replace Wincanton by another company which would undertake the logistics operation. It identified a company called Expert Logistics for this purpose. It then gave notice to terminate the agreement with Wincanton with effect from the close of business on Friday 29 February 2008. As of Monday 3 March its deliveries to customers would be dealt with by Expert. The judge said that clause 5 of the 2008 agreement obliged Wincanton to use reasonable endeavours to make excess stock available for collection for transfer to Expert, or at least not to impede the collection of excess stock for that purpose. Pursuant to clause 5, the parties met and agreed that Wincanton would arrange to transfer the excess stock to Expert, being paid at specially agreed rates for this service. Such deliveries began in the week beginning on 18 February (9 loads) and Wincanton invoiced DRL on 25 February for those 9 loads and for an assumed delivery of 3 further loads during the week beginning 25 February.
- On 26 February Wincanton raised an invoice for payment for deliveries to DRL's retail customers during the previous week. This was to be paid by close of business on 28 February. Also on that day Mr Taylor of Wincanton spoke to Mr Caunce of DRL to tell him that Wincanton was only willing to continue deliveries if DRL paid Wincanton the sum of £250,000, in addition to the £1 million already paid, and in addition to payment of all invoices for deliveries made under the 2008 agreement. This was, in effect, a demand for a further payment towards the old invoices which Wincanton had been claiming, but which it had agreed not to claim while the 2008 agreement remained in force. On the same day Wincanton diverted deliveries of excess stock which were on their way to Expert, so as to go to Wincanton's depots instead. This included stock which had been allocated by DRL for deliveries to be made by Expert to customers of DRL in the following week.
- On 27 February Mr Carrol of Wincanton spoke to Mr Caunce, increasing the demand from £250,000 to £300,000, and demanding payment by 29 February for all deliveries made during that week. Wincanton did, however, continue to make deliveries to DRL's retail customers for the time being. Faced with the interruption of supplies to Expert, DRL started to make arrangements to buy replacement stock.
- On 28 February Mr Carrol spoke again to Mr Caunce in several successive calls, of which Mr Caunce recorded the first two. Mr Carrol made it clear in the first conversation that he required payment of the additional £300,000 as well as of the invoice which was due for payment that day, if he was not to stop all deliveries, asserting a lien over the stock. He said: "I'll just stop delivering. I'll hold the stock back so at least I've got something rather than nothing." Mr Caunce protested that this was contrary to the agreement, to which Mr Carrol said "forget the agreement, let's start again here". Mr Caunce agreed to go back to the DRL board to obtain a decision. In the second conversation, Mr Caunce made it clear that the additional money would not be paid, nor would the invoice already submitted which would be due for payment by close of business that day. It seems from the transcript of the call that Mr Caunce still had some hope that Wincanton would back down and would resume the deliveries to Expert and continue deliveries to customers the following day. Mr Carrol said he would revert with Wincanton's response. He did call later, to leave a message that Wincanton would stop its deliveries. After that, the two men spoke again, at 4.05 pm, in the course of which, according to Mr Carrol's note, they restated their positions, DRL's that it would not pay the invoices let alone the extra sum which had been demanded, and Wincanton's that it would not make any deliveries on the following day.
- After that Mr Carrol sent a letter to Mr Caunce, before the close of business, in which he referred to the conversations and to Mr Caunce's statement that DRL would not pay the outstanding invoice, and said that Wincanton accepted DRL's conduct as a repudiation of the agreement and brought the arrangements between the two parties to an end with immediate effect. He claimed a lien on the goods held, and said that unless all sums due (including the old invoices) were paid by 3 March, Wincanton would exercise its lien and sell the goods. No further deliveries were made by Wincanton to customers or to Expert, and no further payments were made by DRL.
The POD forms
- The question for decision on this point is what is the significance, as between DRL and Wincanton, of a customer having signed the POD form in an unqualified manner, so as to confirm that the goods had been unpacked, inspected and found to be in satisfactory condition. The judge held that, under the 2005 agreement, Wincanton was liable for any damage unless it could show not only that the POD form had been signed but also that the product had in fact been unpacked and inspected. That was the effect of the wording in clause 13. However, the 2007 agreement replaced that clause with a different version which did not include the express dual requirement.
- Under the 2007 agreement Wincanton accepted liability for damage to the goods while under its control. That period was defined as starting on the receipt of the goods into their warehouse and finishing on receipt of a customer signature to accept the product undamaged, or on return of the product to the warehouse. Thus in that case the significance of the POD form is that it defined the end of the period when the product is at Wincanton's risk as regards damage. The clause does not profess to discharge Wincanton of liability for any damage which has in fact occurred during that period, though no doubt the existence of the POD form is evidence on which Wincanton can rely to show that it was not damaged when delivered to the customer.
- The new clause 13 goes on to allocate liability for loss on product disposals according to circumstances. It deals with three different types of case. The first two are cases of failed delivery. The first is what is categorised as a Wincanton fault failed delivery; the second is a non-Wincanton fault failed delivery. Into which category a particular case of a failed delivery will fall depends on how it is classified, according to a list of events, with appropriate codes, set out in appendix 2 to the agreement. The third case is of "any collected goods then disposed". Collected goods are likely to have been cases where the goods were delivered but the customer complained or rejected the goods, after rather than at the time of delivery. These are not necessarily cases in which the goods were damaged or defective. For example, the customer could change his or her mind and cancel without penalty within 7 days under the Consumer Protection (Distance Selling) Regulations 2000.
- These three types of case led to different financial consequences: if the failed delivery was Wincanton's fault, it had to pay DRL the whole cost value of the goods, but could retain the proceeds of the disposal; if it was a failed delivery which was not due to its fault, it had to pay DRL 37.5% of the cost value, retaining the proceeds; if it was a collection case it had to pay DRL only the proceeds of the disposal.
- The judge held that these new provisions constituted a self-contained code dealing with the allocation of responsibility for all cases of failed delivery or subsequent collection of goods, according to how the case was perceived and classified at the time. For this purpose, he considered, an unconditional signed POD form was determinative that the case was not one of failed delivery: see paragraph 105. On the other hand, he went on (at paragraph 107) to consider a case in which DRL could prove a breach by Wincanton of the unpack and inspect obligation, in consequence of which, although Wincanton had a clean POD form, if the obligation had been properly performed damage which existed would have been discovered and the delivery would have failed, so that the financial consequences under clause 13 would have been different. He held that, in such a case, if DRL could prove it, the existence of the clean POD form would not be conclusive either that there was no damage or that the unpack and inspect obligation had been properly performed.
- Although at paragraph 108 the judge said that, under the 2007 agreement, "a signed clean POD is conclusive and may not be re-opened", it seems to me that he did not mean that it was conclusive for all purposes as between DRL and Wincanton. It would determine how the new clause 13 applied to the particular delivery as between the parties, but it would not preclude DRL from alleging and proving a breach of the unpack and inspect obligation and, if it could do so, claiming damages for breach of contract accordingly.
- He did note that any such claim for breach of contract was, at the time, theoretical since no such allegation had been advanced. For Wincanton it was argued that such a claim could not now be raised because of the one year time limit under the RHA conditions. The judge did not need to decide about that. The importance of the point is that it shows that the "conclusive" effect of the clean signed POD is not unqualified or entirely general.
- For DRL Mr Chaisty Q.C. argued that the judge's conclusion on this was wrong, because something much clearer and more specific was needed than the agreement provided in order to show that a POD was determinative. He relied by analogy on what the judge said at paragraph 206 about the possibility of DRL challenging the code applied by Wincanton to a particular failed delivery:
"I am quite satisfied that (a) clear words would be needed to prevent one contracting party (in this case DRL) from contending that the unilateral determination by the other contracting party (in this case Wincanton) as to whether a particular failed delivery fell within the Wincanton fault category or the Wincanton no-fault category was incorrect, when the effect of such determination would determine the contractual allocation of financial responsibility for that incident."
- For his part Mr de Verneuil Smith for Wincanton pointed out that the POD form was not a unilateral determination by one of the two parties; it depended on signature by the customer. Nor did the existence of such a form affect the allocation of the case between the two categories of failed delivery. On the contrary, where such a form existed it was, necessarily, not a case of failed delivery but of effective and accepted delivery. Under clause 13, if it was not a failed delivery case, it would be a collected goods case, and the agreement did not seek to distinguish between one type and another of collected goods cases.
- It seems to me that the judge was right in his conclusion on this point, although, as I have mentioned, the way he put it at paragraph 208 could be misunderstood. The POD form is not conclusive generally for all purposes of the agreement, but it is conclusive that it is not a case of failed delivery under clause 13. The classification of transactions between successful deliveries and failed deliveries depended on whether a POD form was signed by the customer. If one such was signed, then it counts as a successful delivery. If it should not have been so counted, because of a breach by Wincanton, then DRL may have a claim for damages for breach of contract by Wincanton, but that is a separate matter. Under clause 13 as it stood after the 2007 variation the classification is determined by whether a POD form was signed or not.
The RHA conditions
- The judge had to consider two different points on the RHA conditions: he decided in favour of DRL on one and in favour of Wincanton on the other. I will start with the first, challenged by Wincanton in its Respondent's Notice.
- The relevant condition is number 13, as follows, omitting paragraph (3) as unnecessary:
"13. Time Limits for Claims
(1) The Carrier shall not be liable for:
(a) damage to the whole or any part of the Consignment, or physical loss, mis-delivery or non-delivery of part of the Consignment unless advised thereof in writing within seven days, and the claim is made in writing within fourteen days, after the termination of transit;
(b) any other loss unless advised thereof in writing within twenty-eight days, and the claim is made in writing forty-two days, after the commencement of transit.
Provided that if the Customer proves that,
(i) it was not reasonably possible for the Customer to advise the Carrier or make a claim in writing within the time limit applicable, and
(ii) such advice or claim was given or made within a reasonable time,
the Carrier shall not have the benefit of the exclusion of liability afforded by this Condition.
(2) The Carrier shall in any event be discharged from all liability whatsoever and howsoever arising in respect of the Consignment unless suit is brought within one year of the date when transit commenced."
- It was common ground that the RHA conditions were incorporated, and there was no great disagreement as to the principle of construction applying where there is said to be a conflict between the specifically agreed terms of a contract and those of a standard form incorporated into such a contract. The court will seek to construe the contract as a whole. If a reasonable commercial construction of the whole can reconcile two provisions which are said to be in conflict then that reading will be adopted, in preference to rejecting one provision entirely.
- The conflict which is said to arise is between the requirement in condition 13(1) of notification within 7 days, on the one hand, and the particular arrangements under the contract as regards provision of information between the parties. The judge referred to four particular features of these arrangements, under the agreement as varied in 2007.
i) Wincanton was obliged to provide DRL with POD information the day after delivery, to provide real time information about the progress of deliveries and to deal with DRL's questions. DRL would normally learn fairly quickly from a customer if a product had not been delivered on the agreed date, or had been delivered in a damaged state. It was therefore reasonable to suppose that DRL would be in a position to know without undue delay when something had gone wrong with an individual delivery.
ii) It would take further time for DRL to know whether a further delivery of a replacement product had been successfully achieved. If Wincanton applied a no-fault code to a failed delivery DRL would not necessarily know enough for some time in order to challenge that coding.
iii) Wincanton was to supply information about internally lost products on a weekly basis.
iv) Under clause 7, Wincanton was to provide an invoice to DRL on a weekly basis which would deduct from what was due to Wincanton and explicitly disclose all individual failed deliveries or collected products and allowances applicable under clause 13, together with lost products and allowances under clause 15, and certain other allowances under other provisions. That was then to be agreed and signed off between the parties.
- The judge regarded the arrangements last described as being of particular significance. First, it would take some time to work through the details of the invoices and to check the allowances on particular items. Secondly, since the agreement placed Wincanton under the duty to assemble the information and provide it to DRL, including information about items on which sums were due from Wincanton to DRL, there would be no point at all in requiring DRL to give notice of claims to Wincanton as a prerequisite of relying on such a matter in a claim against Wincanton.
- At paragraph 124 the judge said this:
"In my judgment there is an obvious and irreconcilable inconsistency between the stringent notification provisions to §13(1) RHA and the provisions of the 2007 Agreement under which Wincanton was to be responsible for, in effect, 'self-certifying' claims against itself and for there to be a process of agreeing the draft invoices containing those self-certified claims. Nor can it sensibly be argued, for example, that the proviso to §13(1) RHA can be relied on by Wincanton as providing a basis for resolving the inconsistency. This is not a case where it was not reasonably possible to notify or make a claim in time; it is one where there was no need to notify or make a claim in time because the carrier was accepting responsibility for self-notifying and self-claiming."
- Thus he held that the structure of the agreement, in terms of allocation of responsibilities, was incompatible with the application of condition 13(1), at any rate as regards issues comprised within the obligation allocated to Wincanton under the contract. So, whereas he held that condition 13(1) did not apply to claims in respect of loss and damage to products which were the subject of the 2007 agreement, he said that it did apply to other types of claim, for example if a customer complained to DRL that Wincanton's delivery men had damaged the customer's property (other than the goods delivered), and DRL paid compensation to the customer for that damage. There are some such claims within the proceedings. The judge held that these were subject to the notification provision under RHA condition 13(1): see paragraph 128. He also held at paragraph 234 that it did not apply to a claim for damages for the defective performance of the contractual services, if the value of the goods to the recipient is diminished as a result of the breach of contract. On the other hand he held at paragraph 235 that condition 13(1) would not apply to a claim for damages where the customer returned a damaged product on the basis that Wincanton had not performed its unpack and inspect obligation, whereas if it had done so, the damage to the goods would have been discovered at once and the goods rejected there and then, so that it would have been a failed delivery case, not a collection of goods case, under clause 13.
- The distinction drawn by the judge seems to me to be rational and to reflect the arrangements set up by the parties in the bespoke provisions of the agreement. The point of Condition 13(1) is that the carrier should know in respect of which deliveries it is at risk of a claim from the consignor in respect of damage to a consignment, physical loss or mis- or non-delivery. It is to receive notice within 7 days and a claim within 14 days, though these are subject to the extension given by the proviso. Under clause 7 of the 2007 agreement, however, Wincanton was to inform DRL on a weekly basis of the amounts for which it was at risk (at least) for damage under clause 13 and for stock loss liability under clause 15. As the judge said, while DRL would have been capable of notifying Wincanton and making the claim, if the contract were operated properly, that would do no more than respond to Wincanton's notice by giving notice of the corresponding claim. Mr de Verneuil Smith argued that this is all very well for instances where Wincanton accepted liability and disclosed it in the weekly invoice, but that notice and an early claim should have been required for other cases in which Wincanton did not admit liability, to identify the scope of the dispute between the parties.
- Despite that argument, it seems to me that the arrangements under clause 7 are directed specifically to the early identification (and if possible agreement) of instances where Wincanton is liable for loss falling within clauses 13 and 15. The judge did not reject the argument in favour of the application of Condition 13(1) to these cases on the basis that DRL could not comply with the obligation. Rather he held that it was inconsistent with the bespoke provisions of the agreement that DRL should need to do so, or that Wincanton should need to receive such notice. I agree.
- The other issue on Condition 13 is about the overriding one year time limit for bringing suit under 13(2). The judge held that this did apply generally, because it was not inconsistent with any of the bespoke terms of the agreement. DRL argues to the contrary, on the basis that Condition 13 sets up a regime which should apply as a whole, if at all, and that the reasons why 13(1) does not apply should also lead to the conclusion that 13(2) does not apply either.
- Condition 13(2) is expressed to apply "in any event". It imposes a limit which is distinct from that under 13(1), since it applies to "bringing suit", that is to say to commencing proceedings. It applies even if the time for notifying a claim under 13(1) has not yet expired because of the proviso to that condition.
- I do not accept DRL's argument that if 13(1) does not apply, then 13(2) should not apply either, in principle. The bespoke arrangements under a given contract could displace either one or the other or both provisions. Given that 13(2) is clearly intended to apply in a case where, for some reason, it is not yet reasonably possible for the consignor to give notice to the carrier of its claim, in accordance with 13(1), it seems to me that it is also capable of applying if Wincanton, in breach of contract, has failed to self-certify matters which are or could be the subject of a claim under clause 13 or clause 15. I agree with the judge that condition 13(2) does apply to all liability in respect of any given consignment unless proceedings are brought within one year after the beginning of the transit.
- I turn to the issue as to which party brought the agreement to an end by accepting the other's repudiation. The judge held that Wincanton's conduct, though in breach of the contract, was not repudiatory. He did not consider whether, if it had been, DRL had accepted the repudiation. He held that DRL's refusal to pay the invoice due for payment by the close of business on 28 February 2008 was repudiatory and that Wincanton had accepted that repudiation. If his premise is correct, his conclusion follows. So the question is whether DRL crystallised the position first by accepting a repudiation by Wincanton. Was there a repudiation by Wincanton, and did DRL accept it?
- On the first of those questions, I would respectfully disagree with the judge. The demand for an additional payment of £250,000 or £300,000 in respect of the old invoices was plainly a flagrant breach of the agreement. Wincanton had received £1 million down as part of the price for continuing to deliver. It was entirely unjustified in demanding an additional payment in respect of the old invoices. Likewise Mr Carrol's assertion of a lien was completely inconsistent with the arrangement under the 2008 agreement, as was Wincanton's diversion of goods on their way to Expert Logistics, taking them to their own premises instead. Thus Wincanton's position on 26 February was already in breach of contract in highly material respects. It was still delivering to customers day by day for the time being, but it was intent on extracting further cash from DRL by the threat - already implemented though not yet irreversibly - of not supplying goods to Expert, which were to be used to fulfil deliveries to customers due on or after 3 March.
- By 28 February, as I have described at paragraph  above, Wincanton's threat was to make no further deliveries at all the next day, whether to Expert or to customers, unless DRL paid the additional £300,000 as well as the invoice that was due that day. This stance amounted to a repudiation of all of Wincanton's obligations under the contract.
- The judge rejected the argument for DRL on the basis that a refusal to deliver to Expert Logistics, while continuing to deliver to customers, could not amount to a repudiation of the contract. The obligation to deliver to Expert was not a condition of the contract and, on the basis that deliveries to customers were not threatened, the essential and substantial benefit of the contract was not at risk.
- I agree that the obligation to deliver to Expert Logistics was not a condition. However, looking at the position in the week beginning 25 February, while delivery to customers during that week was an important part of the process by which the relations between the parties were to be brought to an end in an orderly manner, the other aspect of the deliveries, to Expert, under clause 5 as implemented by the arrangements agreed in the meantime, was at least as important to DRL, and was a substantial part of what it had paid the initial £1,000,000 for, as well as paying intervening invoices for deliveries since 19 January on the nail and without set off. The judge noted that, by the time of the conversations of 28 February, DRL had already bought in replacement stock so that it could comply with its own obligations to customers the following week. That is true, but it only did so because it had to, in order to mitigate the loss and the effect on its goodwill which would otherwise have been caused by Wincanton's breach of contract. I therefore regard the position which Wincanton had taken from 26 February and which it maintained through to the afternoon of 28 February as a repudiation of the contract, despite its continuing to perform the contract, at least until 28 February, as regards deliveries to customers. It also seems to me that the judge did not take full account of the threat by Wincanton, in the first telephone call on 28 February, to withhold all deliveries the following day, including those which should have been made to customers.
- So the next question, not addressed by the judge (and not, in terms, put in issue in Wincanton's skeleton argument) is whether, and if so when, that repudiation was accepted by DRL. Mr de Verneuil Smith argued that, even in the second telephone conversation on 28 February, it can be seen from the transcript that Mr Caunce was hoping that Wincanton would back down from its threat to stop deliveries. In the first conversation Mr Caunce agreed to consult the board of DRL to see whether they would agree to pay the additional money demanded. In the second conversation he conveyed the message to Mr Carrol that DRL would not do so. He did not at that stage regard the contract as immediately discharged there and then. He awaited Wincanton's response.
- Mr de Verneuil Smith pointed out, however, that in the course of that conversation, DRL's position was that it would pay neither the extra money nor the invoice due that day. That would itself have been a breach of contract as regards the money due on the invoice. Neither party treated the contract as discharged at once. A further telephone conversation was expected and it occurred later in the afternoon.
- Of this conversation we have a short note, not a transcript. Mr Carrol had left a message to say that Wincanton would not resume deliveries, and the two men then spoke, in a conversation recorded as being at 4.05 pm, confirming their respective positions. By then, as it seems to me, DRL had accepted that Wincanton would not be delivering any goods to anyone the next day. For Wincanton Mr de Verneuil Smith argued that by then DRL's position was an anticipatory breach, by its stating its refusal to pay the invoice that was due that day, so that by refusing to deliver Wincanton was accepting DRL's repudiation. That is not, however, how Wincanton expressly treated the events of the day at that time. Its position, upheld by the judge, was that it accepted DRL's repudiation by the letter which it sent to DRL later that day. Accordingly, the question as regards the telephone conversation which took place at 4.05 that afternoon is not which of the two parties accepted the other's repudiation in the course of that conversation, but whether DRL accepted Wincanton's repudiation. It seems to me that the proper view is that it did. Mr Caunce's position from 26 February onwards was that Wincanton's attitude was unlawful and in serious breach of contract. In the first telephone conversation on 28 February he protested at the wholly unjustified demand for extra money. In response to that protest Mr Carrol made it clear that he was not accepting the terms of the agreement. DRL had hoped that Wincanton would back down, and had given it a number of opportunities to do so. By the time of the conversation at 4.05 in the afternoon it was clear that it would not do so. In response, it seems to me that DRL's statement of its own final position in the course of that conversation, under which there would be no further performance by it of its obligation of payment under the contract, in response to Wincanton's existing breaches and refusal to perform for the future, should be regarded as DRL's acceptance of the repudiation by Wincanton. Thus, from that point on, the agreement as a whole was discharged for the future.
- That brought to an end the temporary suspension, on the one hand, of Wincanton's right to claim payment of the older invoices and also, on the other, of DRL's ability to assert its own cross-claims and to set those claims off against Wincanton's invoices. Thus, DRL was discharged from its obligation, which otherwise would have had to have been performed by close of business that day, to pay the latest invoices free from any set-off or other deduction. Of course the amounts due under those invoices remained due (subject to any argument about particular items) but DRL was entitled to assert its cross-claims as a reason for not paying the invoices, whereas during the subsistence of the agreement as varied in 2008 it was not so entitled. It follows that DRL's refusal to pay the invoice dated 26 February by close of business on 28 February was not a breach of contract.
- I would therefore answer question 17A to the effect that Wincanton did commit a repudiatory breach of contract, at the latest on 28 February, which DRL accepted in the course of the telephone conversation at 4.05 pm on 28 February, before Wincanton purported to accept any repudiation by DRL. Accordingly the contract was discharged for the future from that time, and DRL was not in breach by not paying the latest invoices by close of business on 28 February.
- I come last to the judge's order for payment against DRL on the basis of summary judgment for Wincanton for the amount of four invoices rendered for deliveries made under the 2008 agreement. That arose in this way. Wincanton has a counterclaim for payment of unpaid invoices. The possibility of the judge giving judgment for any amount which was incontestably due in that respect had been raised inconclusively in the course of submissions before the main judgment. In paragraph 279 of his main judgment the judge identified a possibility for Wincanton to apply for judgment on the basis of his findings in the judgment. Wincanton took up that suggestion and applied for summary judgment accordingly.
- Following the termination of the agreement, Wincanton retained the goods that it then held, asserted a general lien over them under RHA condition 14, sold them for about £408,000 and appropriated that money to the oldest of its outstanding invoices, issued in 2007. In the summary judgment application it claimed that there was no defence to its claim for payment of the amount of the invoices which were due for payment under the 2008 agreement because of the clause precluding a set off. It argued that it should therefore have judgment for the amount of those invoices. DRL claimed that because the debts to which Wincanton appropriated the proceeds were disputed and were themselves subject to a set off, Wincanton should not have judgment for the invoices rendered for deliveries made in February 2008 because the £408,000 will or may be found to have been allocated to something which was not due, in which case it should be reattributed to payment of the 2008 invoices which were not in dispute and not subject to set off.
- In his judgment on the summary judgment application, the judge explained the position under that application as follows. Wincanton applied for judgment for the amount of six invoices in respect of deliveries made during February 2008 and not yet paid, making £579,631.68 in all. DRL pointed out that some £200,000 had been paid against the first, or the first two, of the invoices and had not been brought into account. The judge accepted that this was correct and recorded that, for this reason, the first two invoices had been withdrawn from the application. That left four invoices, with a total of £369,825.54. As regards these he accepted that DRL had shown genuine issues about some £1,400 of the claim, which he deducted. He gave judgment for £368,396.48.
- The details of this were not examined during the argument of the appeal, but the appeal bundles include a schedule prepared by Wincanton of the relevant invoices, with supporting materials. This shows that the invoices came in pairs: two dated 18 February, two dated 25 February and two dated 1 March. The first two were withdrawn from the application, as I have explained. The last two were rendered after the termination of the agreement, in respect of deliveries made during the week beginning 25 February. The third and fourth are shown on Wincanton's Schedule as having been due on 27 February, in accordance with the 2008 agreement. However, I take it that these were the invoices which were due for payment by close of business on 28 February, which were under discussion between the parties on that day. Despite their date, they would not have been due until 28 February if they were not received by DRL until 26 February. That is how the judge refers to their amount at paragraph 241 of the main judgment. Accordingly I proceed on the basis that none of the invoices for which the judge gave judgment was due for payment before the moment when the agreement came to an end, on the basis of my decision explained above as to repudiation.
- The invoices due for payment on 28 February 2008 were therefore not, in the end, payable free from any set off on the part of DRL. That is true, all the more so, for the invoices dated 1 March 2008.
- Accordingly, because the agreement came to an end on DRL accepting Wincanton's repudiation on the afternoon of 28 February, before the last moment when, in accordance with the 2008 agreement, the 25 February invoices were payable by DRL without set-off, it seems to me that DRL was entitled to assert a set-off of its cross-claims in order to justify not paying these invoices.
- If that were not so, I would have agreed with the judge as to the inadequacy of DRL's defence to the claim for summary judgment. Wincanton contended that the existence of cross claims on the part of DRL was irrelevant given the "no set off" agreement. Furthermore, even if Wincanton was not entitled to appropriate the proceeds of its sale of the goods to an earlier debt because the earlier debt turns out to be exceeded by DRL's claims, the result of that would only be to increase DRL's cross claim, not to subject the February 2008 invoice to a set off in the face of the "no set off" agreement.
- In principle that seems to me to be correct. The fact that DRL disputes the liability to which Wincanton has appropriated the payment does not mean that it has to reappropriate it to a liability which is not in dispute. I agree with the judge as to the principle, although because of my different conclusion on repudiation, the point does not arise. Any invoices which had fallen due for payment under the 2008 agreement before it was discharged would have been payable without set off and therefore suitable for summary judgment. For reasons given above, it seems to me that there were none, and that therefore the summary judgment application should have been dismissed.
- I would therefore allow DRL's appeal on the repudiation issue and, as a result of that, also the appeal against the order for payment made by the judge on the basis of summary judgment. In all other respects, I would dismiss both DRL's appeal and Wincanton's Respondent's Notice.
Lord Justice Stanley Burnton
- I agree.
Lord Justice Rix
- I also agree.
UPON the Appeal of the Appellant and the Cross Appeal of the Respondent
UPON hearing leading and junior counsel for the Appellant and counsel for the Respondent
IT IS ORDERED THAT:
- The Appellant's appeal in respect of Issue 2(d) and Issue 5(d) and the Respondent's cross appeal are dismissed.
- The Appellant's appeal in respect of Issues 17, 17A and summary judgment is granted.
- The decision of His Honour Judge Stephen Davies in respect of Issues 17, 17A and summary judgment is set aside and replaced by the following:
a. The answer to Issue 17 is "No".
b. The answer to Issue 17A is "Yes. In the circumstances the Claimant is entitled to assert a set off of its cross claims in respect of the invoices issued by the Defendant under the 2008 Agreement."
c. The Respondent's application for summary judgment dated 6 September 2010 is dismissed and there shall be no order as to the costs of that application.
d. The Respondent shall pay the Appellant the sum of £461,792.36 (being the amount of the summary judgment) together with interest thereon of £1,372.64 and the sum of £4,990 (being the amount of the costs of the Respondent in respect of the summary judgment application).
- The Respondent shall pay to the Appellant interest on the monies referred to in Paragraph 3d. above at the rate of 2% per annum from the date of payment by the Appellant to the date of repayment by the Respondent.
- The Respondent shall pay 70% of the Appellant's costs of and incidental to its appeal and the Respondent's cross-appeal to be the subject of detailed assessment in default of agreement.
- Issues 7 and 8 will be remitted to His Honour Judge Davies for consideration as to the effect of the Appellant's appeal thereon.
Reasons for the court's decision on consequential matters
- The parties agreed on some aspects of the order to be made, but disagreed about costs and interest.
- The appellant sought 90% of its costs of the appeal and all of its costs of the cross-appeal. The respondent argued in favour of no order for the costs of the appeal or the cross-appeal. Given the overlap between the issues on the appeal and cross-appeal it seems to us wrong to distinguish between the two.
- Our order is that the respondent shall pay to the appellant 70% of the appellant's costs of the appeal and the cross-appeal. In coming to that conclusion we take into account the appellant's success on the issue of repudiation, and consequently on summary judgment, and also on RHA condition 13(1), but its failure on the questions of the POD forms and RHA condition 13(2). We also take into account the fact that its success on summary judgment was the result of its success on repudiation, not of the other arguments addressed to us on summary judgment as such. Moreover we have taken into account that fact that the appellant set out at the start of the appeal to raise a wide variety of issues, on many of which it failed to get permission to appeal. We consider that for it to receive 70% of its costs is a fair reflection of the degree of success that it achieved, taken with the unsuccessful arguments advanced in several respects.
- We will make no order as to the costs of the summary judgment application below, with the result that the respondent must repay the costs which it received, but does not have to pay any costs to the appellant. This is because the respondent's success on the summary judgment application followed from its success (in the main judgment) on repudiation. The appellant's arguments on summary judgment were all rejected by the judge and, so far as they were renewed before us, also by us. The appellant could and should, therefore, have submitted to the summary judgment application while reserving its position as regards an appeal on the repudiation point.
- The last issue is as to interest on the sum to be repaid as a result of the overturning of the order for summary judgment. It is accepted that, in principle, interest can and normally would be ordered in such a case. The appellant seeks interest at 8%, the rate payable on judgment debts. The respondent invites the court to make no order for interest because real rates are currently so low. We have no information as to whether the appellant has been out of pocket by having to borrow, or by not being able to place the money on deposit. If the latter, it would have secured a very low interest rate. If the former, it would have paid a real rate of interest, but we do not know how much. In the circumstances we propose to order that interest be paid at 2% per annum.
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