England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM TORQUAY AND NEWTON ABBOTT COUNTY COURT
(HIS HONOUR JUDGE NELLIGAN)

		Royal Courts of Justice Strand, London, WC2A 2LL
		21st May 2009

Lord Justice Longmore:

1. This appeal is about golf clubs and, in particular, two ranges of wooden clubs known as 'Genus' woods and 'Xenon' woods. They were made or assembled in China and bought by the Masters Golf Company Limited ("Masters") through their Far Eastern purchasing agents, Taiwan Scot Company Limited ("Taiwan Scot") for resale in the United Kingdom.
2. Because Masters wanted credit terms the original purchase was made by Taiwan Scot, who then invoiced Masters for the contractually agreed price. Matters proceeded amicably until, on 26 May 2000, Taiwan Scot were told by Masters that invoices for sums then due would not be paid in full because customers were complaining that the shafts of the clubs were defective and were breaking while in use.
3. This became a running source of dispute between the parties. Taiwan Scot protested but no agreement could be reached until a meeting took place at the Falmouth Hotel on 2 July 2001 between Mr Duncan Robinson and his wife, who were the directors of Taiwan Scot on the one hand and Mr Darren Evans, the managing director of Masters, on the other. It was then agreed that most of the defective golf clubs would be collected together and inspected and that Masters would make certain payments. In due course a written agreement was made between the parties, whereby a first payment of US$160,000 was to be made by Masters. That was paid, and there was no further dispute about that.
4. There was also to be a second payment of a identical sum of US$160,000 subject to 1) Taiwan Scot being ready, willing and able to transfer title in "physical stock" held by them; and 2) the production and the delivery by Masters of a shortfall statement specifying the quantity of stock in their own stock lists which exceeded the "physical stock" held by Taiwan Scot. Inspection of the physical stock was to take place on or before 23 July 2001 at premises called First Global, which were later changed to Kings Power/New Asia, and any shortfall statement was to be served by 25 July. In the absence of any shortfall statement the second sum of US$160,000 was to be payable in any event.
5. Unfortunately, Mr Robinson could not get an immediate visa permitting him to leave and re-enter Taiwan for the stocktaking exercise envisaged by the agreement which was to take place in China. On Friday 20 July he made it clear to Masters that he could not leave for his first destination of Hong Kong on Monday 23 July, with the result that he could only check and handover the stock on Thursday or Friday of that week. He in fact left for Hong Kong on Tuesday 24 July, and by 30 July had been able to procure delivery of the "physical stock" for inspection at Kings Power/New Asia. That inspection duly took place, whereupon Taiwan Scot were ready, willing and able to transfer title in that stock to Masters.
6. The judge held, and both parties now accept, that the effect of the communications between them at this stage was that the agreement was varied to provide that the inspection was to take place by 30 July and any shortfall statement was to be provided by 2 August. It follows that the relevant dates in the agreement must be changed from 23 and 25 July to 30 July and 2 August respectively. No shortfall statement was served by 2 August, and the judge therefore held that the second tranche of US$160,000 became due on that date. A payment of US$78,757.43 was made only on 8 January 2002 and the judge therefore gave judgment for the balance of US$81,242.57. Masters now appeals to this court form that judgment.
7. The relevant terms of the agreement are as follows:

"NOW IT IS AGREED as follows:

1. Masters will pay Taiwan Scot US$320,000 (Three hundred and twenty Thousand United States Dollars) by telegraphic transfer to Taiwan Scot's Bank account payable as follows:

1.1 the sum of US$160,000 (One hundred and sixty Thousand United States Dollars) on the signing of this Agreement and

1.2 the sum of US$160,000 (One hundred and sixty Thousand United States Dollars) payable by 25^th July 2001 or on Taiwan Scot being ready willing and able to transfer to Masters the Physical Stock referred to in clause 3.1 whichever is the later.

2. In default of payment as provided in clause 1 above Masters will pay Taiwan Scot interest at the rate of 15% per year from the date on which payment fell due until the date of payment to Taiwan Scot.

3.1 Definitions

3.1.1. "The Stock" means the qualities of items listed the quantities of items listed in Masters computer generated lists being firstly Masters Stock Valuation Report dated 29^th June 2001 ('the First Stock List') and secondly Masters Xenon Quantities Delivered/in China against ordered (undated) ('the Second Stock List') copies of which are annexed hereto.

3.1.2. 'The Physical Stock' means the stocks of the following items physically held by or on behalf of Taiwan Scot: --

3.1.2.1 Xenon club heads.

3.1.2.2 China stock of: Shafts

Grips

Ferruels

Club Heads (non Xeron)

Assembled Clubs

3.1.3 'The Shortfall' means the quantity by which the Stock exceeds the Physical Stock excluding any items (defined by the stock code in column one of the First Stock List and by the balance of each item shown in the last column of the Second Stock List) where the difference does not exceed 1%.

3.2 On or before 23^rd July 2001 Masters or their appointed agents shall inspect the Physical Stock at First Global Shia Gang Doong Guan Guangdung China and deliver to Taiwan Scot a statement of the Shortfall ('the Shortfall Statement') and Taiwan Scot will transfer to Masters the title in the Physical Stock and Masters shall be responsible for transport and other costs.

3.3 On or before 25^th July 2001 Masters shall pay the Deferred Consideration less a sum equal to the buying price of each item shown in column three of the First Stock List or the invoice price in respect of items in the Second Stock List comprising the Shortfall to Taiwan Scot. If Masters have not delivered the Shortfall Statement to Taiwan Scot by 25^th 2001 Masters shall pay Taiwan Scot the Deferred Consideration without any deduction."

8. Those are the relevant provisions of the agreement, but there then followed provisions for setting off the value of the shortfall from the deferred consideration, including an option in Clause 3.4.1, given to Taiwan Scot to supply Masters equivalent stock to make up the quantity of the shortfall; provisions for title in the stock to be transferred and for Masters to be responsible for transport and other consequential costs. There was also a specific provision requiring Masters to transfer and deliver to Taiwan Scot all the Genus woods then in Masters' possession.

Grounds of Appeal

9. There is in substance only one ground of appeal, but it is supported by four separate points. Mr Leviseur, for Masters, submits that it was not to the parties' intention to vary the contract solely to allow inspection by 30 July and the deferred consideration be paid in full on 2 August if no shortfall statement had been delivered. They also intended to vary, and did vary by conduct, the agreement to allow for "accurate determination" of the shortfall and for the shortfall statement to be served after that determination and, presumably, for payment of the second tranche to be deferred until that happened, whenever it was. That is a summary of ground 2 of the grounds of appeal.
10. The four supporting points are as follows: first, it is said that the variation is shown by the fact that Taiwan Scot, between 18 July and 19 October 2001, sought to persuade Masters to calculate the shortfall not by reference to the June 2001 stock list attached to the agreement but by reference to an earlier, allegedly more accurate, stock list of November 2000. It is said that that conduct was only consistent with an agreement to vary the original agreement in the manner indicated. Secondly, it is said that Taiwan Scot, by their conduct in trying to negotiate the correct amount of the shortfall between August 2001 and January 2002 and indeed thereafter, agreed to forego any contractual entitlement to delivery of a shortfall statement by any specific date. Thirdly, reliance is placed on conduct of Taiwan Scot in October 2002 inasmuch as they caused a substantial quantity of Genus stock to be remade and sent to Masters or their agents and expected to be paid for them, such payment having the effect of producing sums withheld pursuant to the shortfall and pursuant to Clause 3.4.1 of the contract. This conduct was said only to be consistent with accepting the shortfall payment made in January 2002, or at least with accepting that the agreement had been varied to allow for a late shortfall statement. Fourthly, reliance was also placed on a solicitor's letter of 8 October 2002, which was said also to show a recognition that the shortfall statement could, and would, be served only after a detailed reconciliation had been achieved.
11. The first point fell away when it emerged that, despite reference being made to the November 2000 stock list in a negotiations that undoubtedly did occur after July 2001, it was not the case that Taiwan Scot were positively averring that it was that stock list that should be used for the purpose of creating a shortfall statement. There was certainly never any agreement that only the November 2000 stock list should be used. I say therefore no more about that point.
12. The second point, that negotiations continued for many months and were only consistent with the view that Taiwan Scot had agreed to forego their entitlement to the deferred consideration of US$160,000 in full and wait until negotiations had produced an agreed shortfall statement, is an ambitious argument. Negotiations are not usually intended to replace existing rights under a contract unless and until those negotiations come to fruition. These negotiations never did come to fruition, and the idea that Taiwan Scot was agreeing to forego their contractual rights, even if the negations were unsuccessful (despite the espousal of it by Me Leviseur) is, in my judgment, so unlikely that it can be discounted. Mr Leviseur was pressed on a number of occasions by the court to say precisely when the conduct on which he relied resulted in the agreed variation to the parties' contractual rights. His response was that it was difficult to pinpoint an exact time, but that it arrived at the same time as the parties made a definite agreement to negotiate. An agreement to negotiate is, of course, no more than an agreement to agree. It does not usually -- and did not, in my judgment, in this case -- amount to a further agreement to forego rights contained in the original agreement.
13. Mr Leviseur's third point was rather different because it related to a very late date in the parties' relationship, well after Masters had paid to Taiwan Scot in January 2002 what Masters considered to be all that to which Taiwan Scot were entitled. In September 2002 Taiwan Scot said that, at their own expense, they had made or repaired replacement stock which they were prepared to supply to Masters under Clause 3.4.1 of the contract. This would have the effect of reducing any shortfall and it was thus said that the parties must have agreed that the provision for the payment of US$160,000 in the absence of any shortfall agreement must be regarded as a dead letter. I cannot agree that the conduct of Taiwan Scot amounted to a variation of the agreement. At this stage they had only been paid what they regarded as the inadequate sum of US$78,757.43. Not unnaturally, they wanted to be paid what they regarded as the appropriate sum on the basis of a shortfall properly calculated. The remaking of some clubs was only an attempt to balance a deficiency which should not have existed in the first place and does not, to my mind, amount to conduct offering to vary the original terms of the contract, even if there had been conduct on the part of Masters which could be regarded as accepting that offer; nor does it, to my mind, indicate that such a variation had happened at some indeterminate time in the past.
14. The fourth point was that Taiwan Scot's solicitor's letter of 8 October 2002 continued the negotiating stance they had reached and relied on the replacement of the stock already mentioned to reduce the never-agreed shortfall and then demanded payment on that basis. This carries the matter no further, in my judgment. That letter may assume that a shortfall can still be calculated, or even that it has been calculated, at a date after 2 August 2001; but it cannot be construed as a recognition that a shortfall statement has been provided in accordance with the contract or an agreement that such shortfall statement need not be provided at all.
15. In the end none of Mr Leviseur's points can prevail. The judge formed the view that Masters were just using the negotiations to defer the evil day, and, although it is not necessary to express a concluded view on that matter, perusal of the correspondence certainly lends credence to the judge's view. Be that as it may, I would dismiss the appeal.
16. I turn then to the cross-appeal which relates to interest. The judge declined to award the contractual rate of interest as set out in Clause 2 of the agreement in the amount of 15%, because he said it was:

"…an unreasonably high rate, and more inclined towards a penalty than a genuine estimate of loss."

17. With respect to the judge, it was either a penalty or it was not. One forgets, in these recessionary days, that interest rates were considerably higher in 2001 than they are now. It does not seem to me that a contractual rate of 15% was in any way exorbitant in July 2001. It was a rate agreed by two commercial concerns in the economic circumstances of the time and it should not lightly be set aside. In this respect, I disagree with the judge. For my part, I would award interest at the rate of 15% on the sum of US$160,000 from 3 August 2001 up to the date of the inadequate payment on 8 January 2002 and at the same rate on the balance which the judge correctly held due, until the date of judgment. Thereafter, of course, the judgment sum will carry interest at the judgment rate.
18. I would therefore allow the cross-appeal while dismissing the appeal.

Lord Justice Pill:

19. I agree.

Lord Justice Richards:

20. I also agree.

Order: Appeal dismissed; cross-appeal allowed