Decro-Wall International S.A. v Practitioners in Marketing Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE SALMON,LORD JUSTICE SACHS,LORD JUSTICE BUCKLEY |
| Judgment Date | 15 October 1970 |
| Judgment citation (vLex) | [1970] EWCA Civ J1015-1 |
| Docket Number | 1970 D. No. 1235 |
| Court | Court of Appeal (Civil Division) |
| Date | 15 October 1970 |
[1970] EWCA Civ J1015-1
Lord Justice Salmon
Lord Justice Sachs and
Lord Justice Buckley
In The Supreme Court of Judicature
The Court of Appeal
(Civil Division)
(From: Mr. Justice Nield - London)
Mr. Colin Ross-Munro and Mrs. E. Clare Tritton (instructed by Messrs. Clifford-Turner & Co.) appeared on behalf of the Appellants (Plaintiffs).
Mr. Anthony Lloyd, Q.C. and Mr. John Pickering (instructed by Messrs. Simmons & Simmons) appeared on behalf of the Respondents (Defendants).
The plaintiffs are a French company engaged in the business of manufacturing and selling decorative tiles. Their head office is in Paris and their factory in Strasbourg. One-half of the shares in the plaintiff company are held by another French company; the other half by an American company. Mr. Rouot is the president of the plaintiff company and also a director of the French shareholding company. Mr. Josef is an executive director of the plaintiff company and is chiefly concerned with sales. Mr. Herbert Zipkin is a director of the American shareholding company. This company carries on a similar business in the United States of America to that carried on by the plaintiffs in Europe.
At the beginning of 1967 the plaintiffs were minded to enter the English market. To this end, negotiations were begun with the defendants, an English company carrying on a comparatively small but reputable business importing goods from abroad and marketing them in this country. Mr. Clothier is the defendants' managing director. An oral agreement was reached between the parties in March, 1967. Under the terms of this agreement, so far as relevant, the plaintiffs undertook (1) not to sell their goods in the United Kingdom to anyone other than the defendants, (2) to ship goods with reasonable despatch on receipt of the defendants' orders, and (3) to supply the defendants, on demand, with certain advertising material. The defendants for their part undertook (1) not to sell goods competing with the plaintiffs' goods, (2) to pay for the goods which they bought from the plaintiffs by bills of exchange due 90 days from the date of invoice, and (3) to use their best endeavours to create a market for the plaintiffs' goods in the United Kingdom and to develop it to its maximum potentiality.
It will be observed that this agreement contained no express term, as such agreements usually do, defining its duration nor stating any minimum quantity of goods which the defendants (who were what is sometimes called "sole concessionaires") should sellannually in order to retain their concession. The agreement, as both parties now concede, was terminable by reasonable notice on either side. Both parties expected that their oral agreement would be replaced by a formal written contract. Several draft contracts were prepared and discussed during the years in which the parties did business together but none was ever signed.
The defendants made strenuous and successful efforts to create and develop a market for the plaintiffs' goods in this country. By the Spring of 1970, without any obligation to do so, they had spent some £30,000 on advertising the plaintiffs' products. They had engaged at least six extra salesmen and acquired new premises. Mr. Clothier had displayed remarkable ability, enthusiasm and expertise in promoting sales. As a result of the defendants' efforts, their sales of the plaintiffs' products increased very substantially each year. By April, 1970, upwards of 700 outlets had been established in the United Kingdom for the plaintiffs' products and the sales were mounting so rapidly that they accounted for about 83 per cent, of the defendants' whole business. There were reasonable hopes that the volume of sales might equal that which had been achieved in Prance. No one on the plaintiffs' side had any adverse criticism to make of the defendants' business ability or of the results which they had achieved. Indeed there was nothing but praise for Mr. Clothier's efforts. Trouble, however, arose as a result of the defendants' delays in meeting the bills of exchange, to which I will now refer.
In France, 90 days from the date of invoice apparently means 90 days from the end of the month in which the invoice is sent. During the course of dealings between the parties, the terms of payment were altered on a number of occasions. Difficulties were created for the defendants by the devaluation of sterling at the end of 1967 and the imposition of the 50 per cent, import deposit scheme at the end of 1968. At various times the plaintiffs assisted the defendants by financing the import deposits and agreeing to invoices being paid by 120-day and then 180-day bills instead of 90-day bills. By 1970, the parties had reverted to90-day bills. A number of bills were extended with the consent of the plaintiffs. Nevertheless, of the 27 bills in all accepted by the defendants over three years, all but one were paid late. No more than one bill, however, was outstanding at any one time until after the plaintiffs decided to break off relations with the defendants. The delay in payment varied between 2 days and 20 days. During the year ending 31st March, 1970, the average period of delay was 8 days. The reason for the delay was that, as the plaintiffs had known from the beginning, the defendants were short of working capital. They met a bill of exchange out of the proceeds of the sale of the goods in respect of which that bill had been given, or sometimes from the sale of the next delivery of goods. It was therefore clearly of the greatest importance to the defendants that the goods which were ordered should be promptly despatched. There were, however, a number of quite serious delays on the part of the plaintiffs. If the defendants had not ploughed so much money back into the business in order to promote sales, for example by advertising, there would have been no difficulty in their paying the bills punctually. But of course the volume of the business would then have been smaller and the amount owed less.
As the defendants knew, the bills were not intended to be nor were they discounted by the plaintiffs in the ordinary sense of that word. The plaintiffs borrowed from their bank the full amount of the bill on the security of the bill itself. The rate of interest charged was an exceptionally favourable rate - about 2 per cent, per annum - to encourage exports from France. I do not suppose, however, that even French bankers are so patriotic as to lend money at 2 per cent, unless the difference between that rate and the normal bank rate is made up to them by or through the French Government.
If the bill is dishonoured, then the French bank are willing to renew the loan but for not less than 30 days and at an even higher rate of interest than that now current in this country. It follows that if payment of a bill is, say, only 2 days late, the plaintiffs might have to pay interest on the whole amount of thebill at the full rate for an extra. 30 days. Even so, the worst that the plaintiffs could have suffered by reason of the late payment of the bills during the period in which they dealt with the defendants was the loss of a few hundred pounds in interest. And this they could have debited to the defendants.
It was never suggested by the plaintiffs that they ever thought that they were in any danger of being bilked if they went on dealing with the defendants. Indeed their evidence plainly stated that they had no doubt that they would be paid but they knew that the payments would probably be some days late. Since 1968, when it was first suggested by Mr. Clothier, both parties were anxious to form a United Kingdom company to market the plaintiffs' goods in which the plaintiffs should own 51 per cent, and the defendants 49 per cent, of the shares and of which Mr. Clothier should be managing director. Active negotiations were still going on for the formation of such a company right up to the middle of March, 1970. If the plaintiffs had left matters in the hands of Mr. Josef and Mr. Zipkin there would most probably have been no break between the parties. Either the arrangements made in March, 1967, would have been left to continue, probably amplified in a written contract, or else the new projected company would have been formed. Mr. Rouot, however, willed it otherwise and he got his own way.
On the 20th March, 1970, a bill due on the 3rd March, counting the 3 days' grace, was finally paid, part having been paid on account on the 16th March. On the 23rd March another bill fell due but was unpaid, the defendants proposing to pay as in the past 50 per cent, by the end of the month and the balance later. Another bill fell due on the 31st March which as usual was not paid on its due date. Mr. Clothier had drawn up a programme which he submitted to Mr. Rouot for bills and deliveries from March to June, 1970. This programme provided for smaller but more regular and frequent deliveries with some of the earlier bills being paid later than 90 days but the later bills being paid earlier so that by July the bills would be paid within 70 days. But Mr. Rouot would have noneof it. Without a word to the defendants, he arranged in the first few days of April for S. Leboff (Fobel) Ltd. to be appointed the plaintiffs' sole concessionaires for the United Kingdom in place of the defendants. On the 9th April he wrote to the defendants in effect alleging that they had wrongfully repudiated their agreement by failing to pay the bills on time. Mr. Rouot on behalf of the plaintiffs purported to accept this repudiation and to bring the agreement of March, 1967, to an end.
The facts which I have...
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