British Motor Trade Association v Salvadori
| Jurisdiction | England & Wales |
| Judgment Date | 1949 |
| Date | 1949 |
| Year | 1949 |
| Court | Chancery Division |
Contract - Conspiracy - Trade Association - Covenant by purchasers of new cars not to re-sell within twelve months - Breaches - Procurement of breaches.
A person who, knowingly and without justification, actively facilitates a breach of contract and there by causes damage, is guilty of the tort of procurement of breach of contract.
The plaintiff Association were a trade union of which all British motor-car manufacturers and authorized dealers were members. It was the policy of the Association to prevent the immediate resale of new cars, an operation which, owing to the short supply of new cars available to the home market, would have led to price inflation. Accordingly, every member of the public who purchased a new car was required to execute a deed of covenant with the plaintiffs and with the dealer from whom he purchased it that he would not re-sell it within a period of twelve months. The defendants were either not members of the plaintiff Association or were on their stop list, and accordingly were unable to acquire new cars through authorized channels. But by devious means they obtained new cars which they shortly afterwards re-sold far above the original prices. Their usual plan of operation was to buy the cars from persons, usually their agents, who had themselves signed the covenant and bought the car only a very short time previously. It was not suggested that the defendants were unaware of the covenant system. The plaintiffs alleged: (1.) Conspiracy to procure breaches of contract; (2.) Procuring breaches of contract; and (3.) Breach of contract.
Held, (i) that the plaintiffs had proved seven cases of procurement of breach of contract and also two cases of breach of contract. (ii) That the defendants' acts constituted an interference with the plaintiffs' contractual rights in respect of which the plaintiffs were entitled to relief. (iii) That the policy of maintaining fixed prices was a trade interest which the plaintiffs were entitled to protect. (iv) That the plaintiffs had established by their evidence that a failure of the covenant system would cause them to cease functioning; that to counteract the defendants' attack on the system the plaintiffs had had to maintain an expensive inquiry service; and that accordingly, they had proved damage, growing from the defendants' wrongful acts and were entitled to an inquiry as to damages as well as to an injunction in appropriately limited form.
ACTION.
The plaintiff Association was a trade union of which all British motor-car manufacturers and all their authorized distributors and dealers were members. No imported cars being available at present, no dealer who was not a member of the Association could obtain a new car for sale to the public from any manufacturer in the ordinary course of trade. Every authorized distributor or dealer who obtained such a car was bound to sell at the list price. If he broke this rule he was liable to be fined, and in the end he might be put on a stop list. The effect of this was that no member of the Association was permitted to trade with him. The defendants were all either not members or on the stop list, and accordingly they could not obtain a new car through an authorized dealer except by a device such as corruption or impersonation. But the reward for a successful adventure might be more than twice the list price.
The main function of the Association was to protect the interests of the motor trade and the purchasing public, and its policy in that regard was to ensure that list prices were neither inflated nor cut. It controlled its members by rules, fines and by the stop list. To extend this system to the purchasing public every purchaser of a new car was required to execute a deed of covenant on or before delivery of the car with the Association and the dealer who supplied the car, not to resell for a period of a year. The period was formerly six months. The form of covenant was as follows: “This deed made the …. day of …. between …. of …. in the County of …. hereinafter called the owner of the first part and the British Motor Trade Association, hereinafter called the Association of the second part and …. of …. hereinafter called the dealer of the third part whereas (a) the dealer has sold and delivered to the owner the motor vehicle hereinafter called the said vehicle whereof particulars enabling the same to be identified are set out in the schedule hereto. (b) The Association is an association of manufacturers and dealers engaged in the motor industry of Great Britain whose objects are to protect the interests of the motor trade and to safeguard the purchasing public, and for this purpose, inter alia, to prevent price inflation of motor vehicles and of which association the dealer is a member. (c) As part of the consideration for the said sale the owner agrees with the dealer that he will upon the said vehicle being delivered to him by the dealer enter into such covenants with the Association and the dealer as are hereinafter contained. Now this deed witnesseth and it is hereby agreed as follows: (1.) The owner hereby covenants with the Association, and as a separate covenant with the dealer that he will not during the period of twelve months from the date hereof without the consent in writing of the Association, which consent shall not be unreasonably withheld, use the said vehicle or permit the same to be used for any purpose whatever other than the private, professional or trade purposes of the owner so that without prejudice to the generality of the foregoing the owner shall not during the said period without the consent in writing of the Association sell, give, pledge, hire, whether by way of hire-purchase or otherwise, or otherwise deal with the said vehicle in any manner where by the property therein is or may be transferred to any other person. (2.) The owner hereby covenants with the dealer that he will for every breach of covenant on the part of the owner hereinbefore contained pay to the dealer as and by way of liquidated damages and not as a penalty without prejudice to the existing rights or remedies of the dealer hereunder the sum of …. pounds. In witness whereof the owner has hereunto set his hand and seal the day and year first above written.” A space was left for the signature and the covenant continued: “Signed, sealed and delivered by the above-named owner in the presence of.” There was a place for the witness to sign, and to write his address and occupation. Then there was a schedule which referred to the make of car, model of car, chassis number and registration number.
The secretary of the Association said in evidence: “The Association introduced what is now known as the covenant scheme …. to ensure that those who were genuinely in need of a motor-car or motor vehicle obtained it at the manufacturers' list price, and that the retail prices of motor-cars were not inflated, which would have resulted in cars going only to those persons with the greatest amount of cash in their pockets …. It would be beyond human endurance to expect dealers to sell at a narrow margin when they saw their customers immediately obtain the price of three times that amount within a few minutes of sale.”
He stated that the covenant system was on the whole operating successfully, and suggested that the proportion of breaches might be about 2½ per cent. He said in conclusion that if the proportion of breaches became large the effect would be to deprive the Association of its fundamental function, and that it could not continue to exist. With the present state of the market, and with the state of the market as far as one could foresee it, until the Government chose to supply enough cars to meet the demand of the home market practically all the functions of the Association turned on the covenant system. Although there were rules which would continue if the covenant scheme were abandoned, in the present state of the market he could see no useful purpose that the Association could perform if the covenant system were removed.
A dealer outside the Association might have at his disposal a practically new car at double the list price. This might happen in at least three ways: (1.) he might himself make and break a covenant; (2.) he might find the purchaser anxious to break his covenant, and this would be so if the purchaser were only an ostensible purchaser or was another outside dealer; or (3.) he might induce a breach of covenant. The defendants were all members of the so-called “Warren Street kerb market.” This market was frequented by dealers in cars, old and new, but its characteristic feature was that no new car interested it unless it was changing hands above the list price. The market was operated on the kerb side, in basements and tiny offices and in cafés.
The usual plan of operation was for one of the members or associates in this market to put up an ostensible purchaser to sign the covenant, providing him with enough notes to pay the list price for the car, reward himself handsomely and bestow any bribes which might be necessary. Many of the transactions before the court conformed to this pattern. While the ostensible purchaser was really an agent of the operator who supplied the money, he executed the deed in his own name and without power of attorney. Accordingly, he was alone liable on the covenant, and when his principal in accordance with the bargain called upon him to hand over the car, he procured a breach of covenant. This operator, however, did not in the normal case himself sell the car to the public. He sold it to another trader. If that other trader were an independent...
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