England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CENTRAL LONDON COUNTY COURT
(Mr Recorder Woods)

		Royal Courts of Justice Strand, London, WC2A 2LL Thursday 5th April 2001

LADY JUSTICE HALE:

1. The Claimant appeals, with leave of the court, against the order of Mr Recorder Woods, made on 1 October 1999 in the Central London County Court, dismissing his claim for damages for breach of contract and misrepresentation. The central issue is whether the Judge was right to hold that the Claimant had not proved that the representations made were factually incorrect. The Claimant does not have permission to appeal against the dismissal of his claim for breach of contract.

The Pleadings

2. The action was begun by writ dated 7 Dec 1995. The following passages in the Statement of Claim are relevant for present purposes:

'2. In or about November 1989 the Plaintiff entered into negotiations with the Defendants by their servants or agents Steve Perriman (sic) and David Wellstead for the marketing and distribution by the Plaintiff of the Defendant's products. During the said negotiations in order to induce the Plaintiff to enter into a contract to purchase and distribute the Defendant's goods, the Defendants represented to the Plaintiff that he would be the exclusive distributor of the said products in Nigeria and ECOWAS countries.

3. Induced by and in reliance upon the said representation the Plaintiff entered into written agreements with the Defendants through their agent David Wellstead dated the 11th December 1989 and the 1st January 1990 whereby the Plaintiff agreed to market the Elf Ultimate Marine Lubricants and the Challenge Lubricants, in Nigeria and the ECOWAS countries.

5. Pursuant to the said agreement and induced by the representations aforesaid the Plaintiff purchased a consignment made up of a variety of the said products which was despatched to Lagos Nigeria on the 13 of July 1990, at a cost of £12,488 with additional costs and handling and duty in Nigeria of £5000 shipping and insurance £124.48. [the italicised amendment was made with leave at trial]

8. In or about December 1991 the Plaintiff discovered that in breach of the terms of the contract and representations made, another Company had been granted exclusive rights of distribution for all the Defendants products in Nigeria and ECOWAS countries . . . '

Also pleaded was an express term in the agreements that the Claimant would set up a sales operation; that as a result he had set up a Nigerian company, arranged finance, and set up offices; and that large losses had thereby been incurred. However, by a consent order dated 13 March 1997, damages were restricted to damages arising out of the first (and only) consignment and the claim was transferred to the county court.

3. The Defence dated 9 February 1996 made no admissions as to the representations and denied that David Wellstead was acting on the Defendant's behalf. Any contracts were made with Performance Lubricants Incorporated and not with the Defendant. It was denied that another company had been granted exclusive rights of distribution over the Defendant's products in Nigeria and Ecowas countries.

The Facts

4. The agreements related to two lubricants: Ultimate Marine and Challenge. The evidence was that both were produced by Century Oil under licence from the Defendant and sold only by the Defendant. Both were Elf brands, but while Ultimate products were so labelled on the cans, Challenge products were not. Ultimate Marine was a new range of two stroke oils for use on boats, etc. Challenge were high quality lubricants for use in motor vehicles.
5. The Claimant responded to an advertisement for distributors and attended a series of meetings. The first was in early December 1989 at the Defendant's head office in Altrincham, Cheshire. There he met Steve Perriam, market development manager for the Defendant, and David Wellstead. Mr Wellstead was marketing director of a company called Lubricant Marketing (1989) Ltd, but using the trading name of Performance Lubricants Incorporated. Mr Perriam said in evidence that they worked in partnership. Mr Wellstead earned a commission on products sold (rather than trading in them on his own account). The Ultimate Marine range was distributed only through Mr Wellstead. The Challenge range was sold direct or through distributors. The Claimant made it clear at that meeting that he wanted an exclusive distributorship in Nigeria and the ECOWAS countries.
6. After the meeting, Mr Perriam faxed a handwritten letter to the Claimant dated 5 December 1989. It opens: 'For now, we must concentrate on Elf Ultimate two stroke oil only.' Other products must therefore have been discussed. After setting out proposed terms and conditions of supply, it contained the following vital sentence:

'You would receive exclusive rights to the importation of Elf Ultimate 2 stroke oil in order to protect your market.'

Mr Perriam looked forward to meeting the Claimant again in due course.

7. On 13 December 1989 Mr Wellstead wrote to the Claimant:

'Further to our recent discussions at Elf HQ please find attached 2 copies of the agreement which we would suggest operating with you in the Nigerian market place.

As you are aware, Elf Motor lubes products are "theoretically" already in distribution in Nigeria. However, in practice probably the position is not too thorough on the ground.

Therefore we can offer you an arrangement as discussed to supply Elf Ultimate Marine Lubricants and Challenge Motor Lubes through Performance Lubricants Incorporated. This should overcome our clash of Elf motor brands in Nigeria.'

The Judge commented that 'we' was clearly Mr Perriam and Mr Wellstead, not Performance Lubricants. The Defendant seeks to challenge that on appeal but in context it is difficult to see what else it could have been taken to mean.

8. The Claimant signed the first agreement and sent it back. The next letter from Mr Wellstead, dated 2 January 1990, enclosed the Claimant's copy of that agreement and two copies of the second agreement relating to the Challenge range. It waxed enthusiastic:

'I can assure you that once business commences life will never be quite as peaceful again - as you will be swamped with requests for different grades.'

That letter was copied to Mr Perriam, who agreed in evidence that he knew about it.

9. Both agreements were expressed to be between Performance Lubricants Incorporated and the Claimant. The first was dated 11 December 1989, and 'for the purpose of marketing Elf Ultimate Marine Lubricants in Nigeria and the ECOWAS countries.' Clause 1 provided that 'Performance Lubricants Incorporated agree to appoint Patrick Agbobu as exclusive distributor of the full range of Elf Ultimate lubricants in Nigeria and ECOWAS countries'. Clause 2 provided that it was to operate for a period initially of 12 months from 11 December 89 with a renewal option thereafter. There followed provisions about price. Clause 8 provided that 'In return for items 1-7 inc. Patrick Agbobu will establish a sales operation between U.K. and Nigeria and ECOWAS countries to establish ongoing sales of Elf Ultimate Marine Lubricants.' It was signed by David Wellstead for Performance Lubricants Incorporated and the Claimant.
10. The second agreement, dated 1 January 1990, was 'for the purpose of marketing Challenge Lubricants in Nigeria and the ECOWAS countries.' It appointed the Claimant the 'exclusive distributor of the Challenge range of Automative and Agricultural Lubricants in Nigeria and ECOWAS countries'. It too was to operate for a period initially of 12 months from 1 January 1990 with a renewal option thereafter. Clause 8 was equivalent to clause 8 in the Ultimate contract.
11. The Judge found (at p 8 of his Judgment) that these agreements were made with Mr Wellstead as agent for the Defendant. Their main purpose was plainly to grant exclusive distributorship rights which only the Defendant could do. He also held that these were granted on the authority of Mr Perriam with the knowledge and apparent approval of his immediate superior, Mr Wellman. He commented (at p 1 of his Judgment) that

'The commercial objective of the Defendant in granting the Claimant these exclusive rights and thereby representing that it was in a position to do so was of course to induce the Claimant to purchase its products.'

12. The Claimant duly purchased a container load of Ultimate and Challenge products for £12,488 which was shipped to Nigeria in July 1990 arriving in August. The paperwork culminated in an invoice on the Defendant's headed paper dated 13 July 1990 addressed to ABH Enterprises. This was by then the trading name used by the Claimant. ABH Oils (Nigeria) Ltd was incorporated in Nigeria on 31 July 1990. The Judge found that the Claimant had probably paid the Defendant direct for these products. The products stayed in a warehouse while the Claimant went about setting up his business. They were eventually confiscated by the warehouseman for non-payment of charges.
13. The Claimant had ambitious plans to develop the business in Nigeria and elsewhere. Having imported these oils, and obtained a permit to do so, he had to set up a chain of filling stations and then obtain the right to draw petrol. All of this took time, and the penalties for infringing Nigerian regulations were very severe.
14. However, Elf Oil (Nigeria) Ltd took exception to his efforts. The Judge described what happened like this (at pp 4-5 of his Judgment):

'As the Claimant himself put it, it was war. There was a series of meetings in December 91 between Elf Oil (Nigeria) Ltd and the Claimant, as chairman and chief executive of ABH Oils (Nigeria) Ltd. At the crucial meeting attended by the Claimant and Chief Ibru of behalf of Elf Oil (Nigeria) Ltd, they confronted each other from opposite ends of a long table.

At this meeting Chief Ibru at one end of the table forcefully asserted that Elf Oil (Nigeria) Ltd had exclusive rights to distribute Elf products in Nigeria, purporting to rely on a document he had in his possession to this effect, and that consequently ABH Oils (Nigeria) Ltd had no right to do so. At the other end of the table the Claimant no less forcefully asserted that Elf Oil (GB) Ltd had given him the right to distribute Elf lubricants in Nigeria. .. .

Chief Ibru concluded by threatening the Claimant that he would take him to Court and report him to the Ministry of Petroleum for contraventions of the relevant regulations, if he went ahead with his plans.

Chief Ibru was a rich and influential man in Nigeria and in the result these threats won the war for Elf (Nigeria) Ltd and the Claimant left Nigeria in early 92 in fear for his personal safety. ... '

The Contractual Claim

15. The judge gave three reasons for rejecting a claim for breach of contract. First, the Claimant could not establish the alleged breach, that is, that at the relevant time Elf Oil (Nigeria) Ltd had exclusive rights to distribute all the defendant's products in Nigeria. Second, the agreements were for 12 months only in the first instance and had not been renewed. Hence at the date of the alleged breach, they were no longer in force. Third, the loss from the alleged breach would have been the expected remuneration and share of profits from ABH Oils (Nigeria) Ltd, but that had not been pursued. The claim had been limited to the expenditure on the initial containerload and that would have been incurred in any event. The second of these is clearly fatal to the contractual claim.

The Misrepresentation Claim

16. The Judge found (at pp. 8-9 of his Judgment) that representations were made by Mr Perriam in his fax and by Mr Wellstead on behalf of the Defendant in clause 2 of the agreements 'to the effect that he and Mr Perriam on behalf of the Defendant through Performance Lubricants were in a position to and would appoint the Claimant as exclusive distributor' of both products and 'that the Claimant would as a result of entering into the distributorship agreements be the exclusive distributor of those products in Nigeria and the ECOWAS contracts for the duration of the agreements.'
17. He also found that by these representations the Claimant was induced not only to enter into the distribution agreements but also to purchase the shipment for £12,488 which he probably would not otherwise have done. (He found that the other sums claimed on the consignment were not proved to his satisfaction.) The Defendant seeks to challenge this finding on the basis that the containerload was not bought until seven months after the representations. However, there is no rule that contracts entered into on the basis of misrepresentations by one party which render them voidable by the other party must be made within a particular time of the representation: this is a different situation from a negligent misrepresentation inducing the Claimant to act to his detriment in other ways than by entering into a contract with the person making the representation.
18. The Judge also found that Mr Perriam and Mr Wellstead had ostensible authority to make these representations on behalf of the Defendant. The Defendant seeks to challenge the finding that Mr Wellstead was making representations on behalf of the Defendant but the Judge's reasons for holding that the contracts were made with the Defendant are equally applicable here. Further, it was Mr Perriam who had offered exclusivity in relation to Ultimate, even though it was at the time only distributed through Mr Wellstead. Mr Wellstead was only an agent for the sale of Ultimate and was in no position to offer exclusivity in relation to Challenge.
19. The Judge also found that these representations were made without proper care. Mr Perriam and Mr Wellstead knew of the risk of a clash of Elf Motor Brands in Nigeria; no proper enquiries were made of Elf Oil (Nigeria) Ltd or of the Elf parent company in Paris as to whether these would clash with the existing rights of Elf distributors in Nigeria; Mr Roberts, the defendant's in-house solicitor, 'also confirmed that agreements offering exclusive distributorship rights in Nigeria and ECOWAS countries should not have been offered to the Claimant without reference to his department' (p 10 of the Judgment).
20. However, the Judge found that the Claimant had not established that the representations made were factually incorrect when made, in December 1989 and January 1990, or at the time when the expenditure was incurred, in July 1990. In making this finding, the Judge concentrated on whether the Claimant could prove that Elf Oil (Nigeria) Ltd had exclusive rights to market the products in question. At the meeting in December 1991, the Claimant and Chief Ibru were at opposite ends of a long table. Chief Ibru did not show the Claimant the document on which he relied to prove that he had exclusive rights (nor for that matter did the Claimant show Chief Ibru his own agreements). It would not be surprising if Chief Ibru had overstated the extent of his rights. No reliance could be placed on his bare assertion.
21. The only other evidence was in two faxes, both from the Elf headquarters address in Paris. One was from a Mr D Botosezzy of 'elf antar france' to the Claimant's solicitors, dated 31 August 1999:

'Following your recent query to Mr FILATRIAU (Elf Lubrifiants), we are pleased in confirming that Lubricants are selling through our operation in Nigeria, Elf Oil Nigeria Ltd.'

The other was from a Mr Clairmonte of 'elf raffinage distribution', dated 17 September 1999 (half way through the trial) to the Defendant:

' . . . I have checked with Pierre Artaud who confirms that there is no trace of any lubricant supply agreement having been signed between SNEA and Elf Oil Nigeria Ltd (formerly Elf Marketing Nigeria Ltd).

Furthermore, he confirmed that this is not surprising, since it is not usual for the parent company to have formal supply agreements with its African subsidiaries.'

22. It is not surprising, therefore, that the Judge held that the Claimant had not proved that at the relevant time Elf Oil Nigeria Ltd had exclusive rights to distribute all the Defendant's products in Nigeria. There was simply no evidence to support this.

Issues on appeal

23. It is also not surprising that the Judge asked himself that question, because that was how the matter had been pleaded and doubtless it was what the Claimant himself believed. But clearly it was not the only question relevant to determining whether or not the representations made were inaccurate as well as careless.
24. The essence of the representations made by Mr Perriam and Mr Wellstead was that they were in a position to offer the Claimant a protected market, or exclusive rights, in the product ranges in question. Although the agreements only lasted for a year, they were renewable: Mr Perriam acknowledged in evidence that if they had been asked to renew it they would have renewed it. They knew perfectly well, because it was a term of the agreements, that the Claimant was to establish a network. The obvious implication was that they were in a position to offer him this protection indefinitely. Further, that protection must have amounted to more than someone else being shown to have the exclusive contractual right to distribute these products. Any right, or even power, to distribute these products would have been enough. The essential representation was that they were in a position to prevent anyone else distributing them, so as to leave the Claimant free and alone to do so.
25. The court and the Defendant knew that this was the way the Claimant was putting his case. In his skeleton argument before the court below, dated 9 September 1999, counsel for the Claimant argued that Mr Perriam's fax and other representations made 'clearly conveys that Elf is at that time in the position to grant exclusive rights to the Claimant, and as such the representations are perfectly capable, if in fact untrue, of supporting an action based on misrepresentation.'
26. The Judge was clearly troubled about this issue during the trial, because he asked counsel whether the Defendant was indeed in a position to do this. Counsel for the Defendant took some hasty instructions and drafted a note over the short adjournment. Mr Perriam later gave evidence about the production and marketing of the products in question. The argument was that because these were UK products, made for the UK company, and in the case of Ultimate sold only through Mr Wellstead, they were indeed in a position to give these assurances.
27. For whatever reason, the judge did not address this question at all in his judgment. This in itself would be sufficient for us to allow the appeal. We have not been invited to send it back for a retrial. Given that the original trial took place over five days, this would be quite disproportionate. The material before us, including the transcripts of the evidence given at the trial, is sufficient for us to be able to resolve it.
28. It is, on the evidence, completely implausible that the UK company was in any position to bind itself to a new and completely inexperienced trader such as the Claimant not to sell these oils to anyone else in Nigeria or the ECOWAS countries even for a year, let alone for longer than that. Despite their ostensible authority to do so, Mr Perriam and Mr Wellstead cannot in fact have been able to give the Claimant the assurances which they gave, and which he had required before being persuaded to enter into any contracts, including the contract to buy these oils (at, on the evidence, a higher price than they would have been sold for in the UK).
29. The Judge found that this was the first time that Mr Perriam had tried to do any such thing. His evidence was that it was not something they could do in the UK. There was nothing to stop someone else buying product and distributing it: it 'happens all the time'. Mr Wellstead himself had nothing to do with trying to maximise overseas sales. They both knew perfectly well that there was an Elf company marketing Elf products in Nigeria. They knew of the risk of a clash of products: that was why they suggested using the expensive Challenge range rather than the Elf labelled products. Mr Perriam in an internal memo dated 24 February 1992 (shortly after the Claimant had returned to this country following his defeat in the war with Chief Ibru and begun to make his complaints) had referred to 'a reluctance to supply ex UK given Elf's involvement in Nigeria' and accepted that 'it is likely that Elf Nigeria have attempted to prevent ABH selling the Ultimate Oils, . . . ' Most tellingly, he was asked outright by the Judge, ' . . . did you have authority within your own company to grant exclusive rights to market products in countries abroad?' His reply was 'I don't know'. When asked 'You may have been exceeding your authority?' he replied 'Possibly'.
30. The Defendant called Mr Roberts, their in-house solicitor at the time. When making his witness statement dated 22 September 1999, Mr Roberts knew how the Claimant was putting the case. His statement is remarkable, as much for what it does not say as for what it does say. He was careful to say that he knew of nothing to stop the Defendant exporting these products to Nigeria or the ECOWAS countries, or of any exclusive agreement which would preclude this, or of any restraint on the use of these trademarks outside the UK, or of any complaint from elsewhere in the group about the Defendant's involvement with the Claimant. The last is scarcely surprising, given that Chief Ibru had won the war.
31. The other points made by Mr Roberts do not address the main issue: could they sell to one person on terms that they would sell to no-one else? Mr Roberts' oral evidence was that he would have expected any such arrangements to have been referred to his department. That is consistent with his view that he would have known of other exclusive arrangements. On the main issue he says 'I believe that corporate loyalty would have militated against international competition with the Elf Group by the Defendant in respect of major product lines bearing the simple brand "Elf".'
32. This is borne out by a letter dated 27 May 1992 from a more junior in-house solicitor in Mr Roberts' department, Mr Odusanya, who had been detailed to deal with the Claimant's complaints because he was himself Nigerian. In addition to denying that Mr Wellstead had any authority to bind the Defendant, or 'to negotiate any agreement on behalf of Elf that would involve the delivery of product to locations outside the UK', Mr Odusanya said this:

'The proposition put forward by your client that his Company was to be appointed an Elf authorised distributor of lubricants in Nigeria and that he was, therefore, in some way, to enjoy a protected market there is not a proposition with which my client can agree. Indeed, for my client to have agreed such a proposition would quite simply have been outside its corporate remit and would have required, at the very least, discussions with the Elf group in Paris.'

33. Mr Odusanya's letter is particularly telling because it states the Defendant's position at the outset, when it may not have become clear that Mr Perriam himself had made written representations and that Mr Perriam and Mr Wellstead had been working together to try and meet the Claimant's desire for exclusive rights in relation to both Ultimate, the marine range, and Challenge, the motor range. Mr Roberts in evidence did seek to limit both his own and Mr Odusanya's observations to pure Elf products, but he also acknowledged that one would have to tread quite carefully in granting exclusive rights in relation to any product and that he would normally have expected someone in the legal department to be involved in vetting or preparing it. The striking thing about his evidence is that, if the position had been that Mr Perriam and Mr Wellstead were indeed able to offer the Claimant a protected market in either or both products, he could easily have said so. He did not. His evidence tends in the opposite direction, just as does Mr Odusanya's letter.
34. The only sensible conclusion from all this material is that Mr Perriam and Mr Wellstead were in no position to give Mr Agbobu the assurance that he would have a protected market in these products. They were content to make those representations, carelessly as the Judge found, in order secure sales. Prices were such that those sales would be highly profitable. Whatever the cause of Mr Agbobu's other expenditure and losses in pursuit of his plans, he would not have bought that containerload in July 1990 without those assurances. Mr Perriam and Mr Wellstead had ostensible authority to make them on behalf of the Defendant even though they should not have done so. The Defendant took the benefit of sales which would not otherwise have taken place.
35. In my view, therefore, that contract was induced by negligent misrepresentation. This appeal should be allowed and judgment given to the Claimant for the loss which the judge found him to have sustained: that is, the £12,488 paid for the consignment.

SIR MARTIN NOURSE :

36. I agree.

LORD JUSTICE HENRY:

37. I also agree.
ORDER: Appeal allowed with costs of the action (on litigant in person rate where applicable); detailed public funded costs assessment; Judgment entered for claimant in the sum of £12,488, plus interest at the Commercial Court rate from 10^th July 1990 until 1^st October 1999 and thereafter at the normal Judgment rate, to be paid within 14 days.
(Order does not form part of approved Judgment)