Lombard North Central Plc v Butterworth
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE LAWTON,LORD JUSTICE MUSTILL,LORD JUSTICE NICHOLLS |
| Judgment Date | 31 July 1986 |
| Judgment citation (vLex) | [1986] EWCA Civ J0731-10 |
| Docket Number | 86/0741 |
| Court | Court of Appeal (Civil Division) |
| Date | 31 July 1986 |
[1986] EWCA Civ J0731-10
Lord Justice Lawton,
Lord Justice Mustill,
and
Lord Justice Nicholls
86/0741
1984 L. No. 1361
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL. CIVIL DIVISION.
ON APPEAL FROM THE HIGH COURT OF
JUSTICE, QUEEN'S BENCH DIVISION.
MASTER LUBBOCK
Royal Courts of Justice,
MR WILLIAM HART (instructed by Messrs Gordon and Penney) appeared on behalf of the appellant (defendant).
MR ANDREW SUTCLIFFE (instructed by Messrs Wilde Sapte) appeared on behalf of the respondents (plaintiffs).
The judgments in this case have been handed down.
The respondent plaintiffs are a finance company. The appellant is an accountant. The appellant wished to buy a computer to improve his business, and enlisted the help of the plaintiffs. They purchased a particular model, and then entered into an agreement of hiring whereby they agreed to lease the computer to the defendant for a period of five years. There was to be an initial payment of £584.05 and nineteen subsequent instalments of the same amount, payable at intervals of three months. In addition, value added tax was to be paid.
The hiring agreement contained the following material provisions:
"THE LESSEE…..AGREES:—
2 (a) to pay to the lessor:
(i) punctually and without previous demand the rentals set out in Part 3 of the Schedule together with Value Added Tax thereon punctual payment of each which shall be of the essence of this Lease:……
5. IN THE EVENT THAT
(a) the Lessee shall
(i) make default in the due and punctual payment of any of the rentals or of any sum of money payable to the Lessor hereunder or any part thereof…..
then upon the happening of such event, the Lessor's consent to the Lessee's possession of the goods shall determine forthwith without any notice being given by the Lessor, and the Lessor may terminate this Lease either by notice in writing, or by taking possession of the goods…..
6. IN THE EVENT that the Lessor's consent to the Lessee's possession of the goods shall be determined under clause 5 hereof
(a) the Lessee shall pay forthwith to the Lessor
(i) all arrears of rentals;
(ii) all further rentals which would but for the determination of the Lessor's consent to the Lessee's possession of the goods have fallen due to the end of the fixed period of this Lease less a discount thereon for accelerated payment at the rate of 5 per cent per annum; and
(iii) damages for any breach of this Lease and all expenses and costs incurred by the Lessor in retaking possession of the Goods and/or enforcing the Lessor's rights under this Lease together with such Value Added Tax as shall be legally payable thereon;
(b) The Lessor shall be entitled to exercise any one or more of the rights and remedies provided for in clause 5 and sub-clause (a) of this clause and the determination of the Lessor's consent to the Lessee's possession of the Goods shall not affect or prejudice such rights and remedies and the lessee shall be and remain liable to perform all outstanding liabilities under this Lease notwithstanding that the Lessor may have taken possession of the Goods and/or exercised one or more of the rights and remedies of the Lessor.
(c) any right or remedy to which the Lessor is or may become entitled under this Lease or in consequence of the Lessee's conduct may be enforced from time to time separately or concurrently with any other right or remedy given by this Lease or now or hereafter provided for or arising by operation of law so that such rights and remedies are not exclusive of the other or others of them but are cumulative".
The letting under this agreement did not go well. The instalments were due to be paid by direct debit. The first two were effected satisfactorily but the third was twice recalled by the bank and remained unpaid for a period of four months' The fourth was paid two weeks late. The fifth was two months late. The sixth was paid on time, but was recalled by the bank. It was paid again one month later, and again recalled by the bank. Two weeks later the plaintiffs lost patience and sent to the defendant a letter in the following terms:
"We regret that in spite of our previous reminders you are still in arrear with your payments. Please take notice that pursuant to the terms of the Lease our consent to your possession of the Goods is now withdrawn and you are required to make them available for collection. Your liability under the terms of the Lease will not cease upon the return of these goods as we are entitled to call upon you to make payment of the balance of the rentals due under the remaining period of the Lease.
If payment of the arrears has been made within the last 7 days please ignore this notice".
Subsequently, the plaintiffs recovered possession of the computer and sold it. The instrument fetched very little by comparison with its purchase price, and the net proceeds of sale were only £172.85.
On 18th May 1984 the plaintiffs commenced the present action by specially endorsed writ. The material parts read:
"4. Pursuant to Clause 5 of the said Lease Agreement the Plaintiff terminated its consent to the Defendant's possession of the said Computer and Printer by a notice in writing dated the 20th day of December 1982 and by virtue of the Defendant's default under the said Lease Agreement the same has been determined.
5. Pursuant to Clause 6 of the said Lease Agreement and by virtue of the determination of consent to possession pursuant to Clause 5 thereof the Plaintiff is entitled to claim (a) all of his rentals (b) all further rentals which would have been payable had the Lease Agreement continued for the full period and (c) damages for breach of the Lease Agreement.
6. The Plaintiff has recovered possession of the said Computer and Printer in accordance with its entitlement to do so under Clause 5 of the said Lease Agreement and the net proceeds of sale amounted to £172.85. Calculating the amounts due to the Plaintiff the Defendant will be given credit for this sum and an allowance will be made for accelerated recipt of the payment due under the said Lease Agreement as provided in Clause 6 thereof.
7. The Defendant has failed to pay the sums referred to in paragraph 5 hereof and the Plaintiff is entitled under the Lease or alternatively as damages for breach of the Lease, the sum of £6,869.97".
The sum of £6,869.97 was arrived at by adding the amount of the unpaid instalments and VAT, and the 13 rentals due after termination, and then giving credit the net proceeds of sale and an allowance of £1,221.49 for accelerated receipt. The pleading concluded with claims for £6,869.97 under paragraph 7, interest and "damages for breach of contract".
The plaintiffs then issued an application for summary judgment under Order 14 R.S.C. An affidavit in reply was sworn on behalf of the defendant. This did not put in issue the plaintiffs' right to terminate the contract, or to recover a sum attributable to the future instalments, but complaint was made about the low price obtained on the resale. The affidavit concluded by asserting that the defendant had a partial defence on the merits, and asking that he should have leave to defend sufficient to enable him to dispute the calculations in the statement of claim.
Precisely what happened thereafter is not clear, but it appears that the plaintiffs did not go to judgment for their claim in debt under clause 6 of the agreement, but instead obtained a judgment for damages to be assessed. The matter was then referred to Master Lubbock, who heard evidence on the resale value of the computer. He decided this issue in favour of the plaintiffs. Argument was also addressed on the measure of recovery. Notwithstanding that the plaintiffs had recovered judgment for damages to be assessed, they continued to rely on clause 6. The defendant replied that this was a penalty. In the event, the Master found it unnecessary to reach a conclusion on this question, since he found that the defendant had repudiated the contract, and that accordingly damages were recoverable in respect of the future instalments, subject to the credits allowed in the statement of claim. He gave judgment accordingly. The defendant now appeals, maintaining that he should not be held liable for more than the amount due and unpaid at the date of termination.
Three issues were canvassed before us:
1. Is clause 6 of the agreement to be disregarded, on the ground that it creates a penalty? (Strictly speaking, this issue does not arise, since the judgment was for damages to be assessed, but clause 6 was relied on by the plaintiffs before the Master and in this Court, without objection).
2. Apart from clause 2 (a) of the agreement, was the Master correct in holding that the conduct of the defendant amounted to a wrongful repudiation of the contract, and that the sum claimed was recoverable in damages?
3. Does the provision in clause 2 (a) of the agreement that time for payment of the instalments was of the essence have the effect of making the defendants late payment of the outstanding instalments a repudiatory breach?
As to the first two issues, I need say only that I have had the advantage of reading in draft the judgment to be delivered by Lord Justice Nicholls, and that I am in such entire agreement with his conclusions and reasons that it is unnecessary to add any observations of my own.
I would, however, wish to deal with the third point. Important as it is, this point has played only a minor part in the proceedings. There is no explicit reference to it in the pleadings, although it is just open to the plaintiffs through their claim for...
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