HANEET CHANDRU VASWANI v. ITALIAN MOTORS (SALES & SERVICES) LTD.

IN THE COURT OF APPEAL

1993, No. 144
(Civil)

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J U D G M E N T

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Godfrey, J.A.:

1. This is the seller's appeal from a judgment of His Honour Judge Gould, sitting as a Deputy Judge of the High Court, given on 12 July 1993, deciding in favour of the buyer a dispute between buyer and seller under a contract dated 1 May 1989 for the sale by the seller to the buyer of a Ferrari Testarossa motor car.

2. The sale fell through because the buyer failed or refused to take delivery of the car when it was offered to him. The seller then forfeited, or purported to forfeit, the buyer's deposit. The question for the judge was whether the seller was entitled to do so.

3. The buyer complained at the trial that the seller had asked for payment of the price of the car calculated otherwise than in accordance with the contract. Accordingly, said the buyer, the seller ought to be treated as having repudiated the contract; and the buyer in those circumstances asked for the return of the (very substantial) deposit of ￡44,875 which he had paid on entering into the contract.

4. The judge, accepting the buyer's view as to the true construction of the provisions of the contract relating to the price of the car, gave judgment for the buyer and ordered the seller to return the deposit. Hence this appeal, in which the seller contends that the judge's construction of those provisions was wrong and contends anyway that it ought not to be treated as having repudiated the contract.

5. I now turn to the history of the matter; this starts on 1 January 1989, just before the contract of 1 May 1989 was signed by the buyer. As is notorious, retail sales of new motor cars are effected on the basis of the list price quoted by manufacturers' authorised dealers when offering the cars for sale. (That is not of course to say that all sales are entered into at list prices. When the dictates of the market require it, dealers will give buyers a discount against the list price.)

6. I mention this because, on 1 January 1989, the seller here published its own price list relating to Ferrari motor cars, including the Testarossa. The list price quoted on 1 January 1989 for this car, at which the car would have been invoiced if it had been available for delivery on 1 May 1989, was ￡179,500.

7. The contract of 1 May 1989 is in a standard form. It was made on the conditions set out in it (subject to contingencies beyond the seller's control). The interior colour and options of the car were described. It was said that the shipment of the car from Italy would be made during the second quarter of 1990 and that although no guarantee of shipment dates could be given delivery would be expedited as much as possible.

8. The contract contained the following provision as to the price:

"Price: Sterling ￡179,500 at contract signing, subject to clause noted hereunder. (Inclusive of first registration tax at prevailing 90% rate.)"

9. This was qualified by the clause printed in red and described in the judge's judgment as the "red clause" which reads as follows:

"(The price appearing upon this document is based upon the manufacturer's current price, specification and present freight and exchange rates. The price is subject to adjustment should there be any change in the manufacturer's current price or freight rates prior to shipment or should there be any change in exchange rates prior to delivery or in any of the other cases set out in Condition 4 and 5 on the reverse hereof and the price ruling at the date of delivery will be invoiced.)"

10. Provision was made for payment of a deposit of 25% of the contract price (￡44,875, as I have said) and by special arrangement, it was provided that interest would be credited on the deposit at UK bank prime rate level. At the foot of the contract, there appeared, also in red, the following note:

"This contract (and the relative Hire Purchase Agreement, if any), is the sole basis and evidence of the transaction referred to herein. No verbal qualification of any kind will be recognised. Customers are therefore requested, in their own interests, to satisfy themselves before signature that the terms of Contract and the conditions governing this sale, which are detailed on the back of this contract, are in accordance with their wishes. Alterations cannot be made thereafter."

11. The first of the conditions governing the sale to which attention should be drawn is condition 4. This provides for what is to happen if the manufacturers of the car should make any changes in their specifications or models. In that case the seller is to deliver to the buyer the current model closest in line to the model offered. The buyer is to be bound to take delivery and to pay "the purchase price" (presumably the list price) for the new model (including any increase by reason of an increase in the manufacturer's price or other circumstances referred to in condition 5), provided that the total price for the model delivered is not to be more than 15% higher than the price specified on the face of the contract.

12. The condition is noteworthy for the very sensible provision it makes to the effect that if there is an uplift in the price of more than 15% over and above the price specified on the face of the contract, the buyer is not to be bound to take delivery (and, no doubt, is to be entitled to the return of any deposit he had paid). In other words, when condition 4 applies, the buyer, if asked for an uplift of over 15%, will be entitled to call off the contract and have his money back. The reason why this provision is noteworthy, although it is in fact inapplicable in our case, is that it is not repeated in subsequent provisions of the contract covering similar matters. If it had been, the problem to which this case has given rise might have been averted.

13. I pass from condition 4 to condition 5. Condition 5 reads as follows:

"5. In the event of war, war-like operations, civil commotion, strikes, floods, currency exchange fluctuations or any other circumstances beyond the control of the Sellers resulting in changes in the cost to the Seller of the goods, ready for delivery in Hong Kong, the Seller shall be entitled to adjust the price to reflect the amount of all such changes."

14. I can, I think, pass over conditions 6 and 7 but I must set out conditions 8 to 11 inclusive in full:

"8. If after having been notified by the Sellers of their readiness to deliver the goods the buyers fails (a) in the case of a cash transaction to pay for goods within seven (7) days, or (b) in the case of a deferred terms transaction to comply with Clause 3 above within seven (7) days, the Sellers shall be entitled to forfeit without notice any deposit paid to them by the Buyer, without prejudice to any other remedy hereunder. In the event of the buyer failing to comply with the clause the sellers shall be at liberty on their own account to sell or otherwise deal with and dispose of the goods in such manner as they may deem fit and the buyer shall be liable for all losses and expenses that the sellers may incur thereby.

9. Any breach by the buyer of any of the terms of this contract shall entitle the sellers to forfeit without notice any deposit paid to them by the buyer without prejudice to any other claims which the sellers may have against the buyers in respect of any such breach.

10. Notwithstanding anything herein contained sellers have the option of demanding payment for the said goods or any portion thereof before delivery is made to the buyer.

11. In the event that the cost to the Seller of the goods, ready for delivery in Hong Kong is increased as a result of any change in the manufacturer's current price or freight rates prior to shipment or as a result of any change in exchange rates prior to delivery or as a result of any other circumstances set out in Condition 5 above or in the event that the Sellers, in their sole discretion, deem that delivery of the goods to the buyer would be likely to affect adversely the sellers' relationships with the manufacturer, or to jeopardise in any way the continued retention by the sellers of the agency franchise they hold from the manufacturer, the sellers shall have the right at any time prior to actual delivery of the goods to refuse to deliver the same and to tender refund in full to the buyer of all money received whereupon this Contract shall immediately become null and void."

15. I need not mention any other conditions save for 16 and 18 which read:

"16. Buyers shall be responsible for payment of licence, transfer fee and insurance premium in respect of vehicle purchased."

"18. Sellers will not be bound by any conditions rebates or any other matters which are not expressly contained in their contracts."

16. This is not a felicitously drafted contract. A number of its provisions overlap. It is particularly infelicitous in its references to "the manufacturer's current price" in the red clause and in clause 11. The contract does not work in practice as its terms suggest, because the seller does not in fact take the price which it sets in Hong Kong from the manufacturer. It buys the cars from an English concessionaire which invoices them in sterling at a price which contains an uplift over and above the manufacturer's price. One way or another, then, this contract is bound to create difficulties. There was evidence that it was adapted from a form in use by dealers in the cars of another well-known manufacturer. As is so often in the case when standard forms are produced in this way, the adaptation has not been successful. Certainly, the provisions for adjustment of the contract price could have been better drafted.

17. It is of course always possible to provide, in a contract of sale, a formula for adjustment of the price. Indeed this is common in cases where there is to be a substantial period of time between the date of the contract and the date when it is to be performed by delivery of the goods. For example, in the Encyclopaedia of FORMS AND PRECEDENTS, Fifth edition (1991), volume 34, in the title "Sale of Goods", I find on page 581 "Price and payment : alternative provisions". The editors provide a precedent, (A), for the "price to be ascertained by reference to seller's price list at time of delivery" (which requires no elaboration). They also provide a precedent, (C), for a price which "may be adjusted before delivery in accordance with a formula". Nothing of course is more undesirable than that these different ways of adjusting the price ultimately to be paid by the buyer should be conflated so as to produce confusion as to what was really intended. That is what has happened here. Unfortunately, this lack of clear thinking leads all too often to ambiguity in the drafting of commercial contracts.

18. Nothing of course could be clearer than a provision which provides that the price of the goods is to be the price stipulated in the seller's published price list current at on the date of delivery of the goods. (That is the (A) precedent). Precedent (C) provides, as an alternative to (A):

"The Seller may by giving notice to the Buyer at any time up to [7] days before delivery increase the Price of the Goods to reflect any increase in the cost to the Seller which is due to factors occurring after the making of the contract of sale which are beyond the reasonable control of the Seller (including, without limitation, foreign exchange fluctuations, taxes and duties and the cost of labour, materials and other manufacturing costs).

It is noteworthy that this precedent contains the following proviso:

"Provided that the Buyer may cancel this contract within [7] days of any such notice from the Seller."

19. A proviso on the lines of that made in condition 4 of our contract (but not in the red clause) might provide a fairer alternative in a case where the seller has had to order goods from the manufacturer (or his concessionaire) to meet the buyer's order. The buyer should be prepared to accept a limited uplift in prices in such a case.

20. The "red clause" in our case is unsatisfactory but I am satisfied that it does have a clear meaning, concealed though that meaning is by the draftsman's failure accurately to identify the governing intention.

21. The clause provided that the price at which the car was sold was subject to adjustment. It provided for the events which would entitle the seller to adjust the price upward as against the buyer. One event would be a change in "the manufacturer's current price". (I think these words are elastic enough to include a change in the price charged by the manufacturer's concessionaire, by whom the car was sold to the seller, as a result of an increase in the manufacturer's price to the concessionaire.)

22. A second event would be a change in freight rates prior to shipment.

23. A third would be a change in exchange rates prior to delivery.

24. A fourth would be any of the events (some of which are self- repetitious) referred to in conditions 4 and 5.

25. In any of those events, the buyer is liable to have the price increased against him by the adjustment to which the clause refers. Now, how is it to be adjusted? The clause concludes with the words "and the price ruling at the date of delivery will be invoiced". I have no doubt that, on the true construction of the clause, it is "driven" (to use a word used by the judge), not by the earlier description of the various events which could lead to an adjustment, but by those final words "the price ruling at the date of delivery". This must mean the seller's list price at the date of delivery. The "list price" would be that stated in the then current edition of the seller's price list. This, in July 1990, when the contract went off, was ￡218,800, substantially more than ￡179,500, the seller's list price at the rate of the contract.

26. If this construction is correct, as I would hold that it is, then it is accepted by the buyer that the demand made on him by the seller was in accordance with the contract. It follows that he should have accepted delivery of the car. In failing to do so he laid himself open to the forfeiture of his deposit. The buyer is accordingly constrained to accept that, on this construction, this appeal must succeed.

27. The judge rejected this construction. He held that the price had to be calculated not by reference to the seller's list price at the date of delivery, but by reference to the actual increases on the cost of the car to the seller. On this footing the calculation made by the buyer (and accepted by the judge and indeed the sellers as correct) would have thrown up a price substantially less than that which the seller had asked the buyer to pay. The point does not arise for decision but I think that, when the seller threatened to forfeit the buyer's deposit unless he paid the price demanded, that being a substantially higher price, on this footing unjustified by this contract, that would have been conduct repudiatory of the contract. It would have made no difference, to my mind, that that was what the buyer wanted; clearly, by July 1990, he did not in fact want the car. (There was some suggestion at the trial that he never really did want the car, at any rate for himself; but there is no need to go into that now.)

28. I do not find it necessary to rehearse the correspondence and discussions between the parties in June and July 1990 which resulted in the sale-going off. It is sufficient to say that, the sellers having offered the car to the buyer, and having made no error as to the way in which the price to be paid was to be calculated, the sellers were entitled, on the buyer's failure to accept the car, to forfeit his deposit.

29. For the reasons I have endeavoured to state, I would allow this appeal.

Mayo, J.:

30. I am satisfied that the only sensible way of construing the so called "red clause" is to interpret it as referring to the list price prevailing at the time of delivery of the car to the plaintiff. I am also satisfied that the plaintiff did not at the relevant time take issue on the amount being claimed by the defendant. There can, therefore, in my view be no question of the defendant having repudiated the contract. The plaintiff was accordingly in breach of the said contract and I agree that this appeal must be allowed.

Penlington, J.A.:

31. I am also of the view that this appeal should be allowed and I agree with the reasons which have been given by my Lords Godfrey and Mayo. However as we are disagreeing with the judge below I would add a few words of my own.

32. A central question in this appeal is whether the demand made on 17 April 1990 for a price of ￡218,800 showed an intention on the part of the seller not to be bound by the terms of the contract. I refer in that connection to what was said by Lord Justice Harman in Sweet & Maxwell Ltd. v. Universal News Services Ltd [1964] 2 QB 699 at p. 730:

"It was attractively suggested [by the Plaintiff] that what [the Defendant] did was to say 'we will only perform the contract upon our terms and not on yours', and that the contract they offered was a different contract from that which they were bound to perform and that, therefore, they repudiated."

33. That of course is essentially what the case for the buyer is here; by the seller asking for this substantial increase in price, of which he did not then give full details (in fact, the seller only gave details at a much later date), the seller must be taken to have repudiated the original contract and was making a fresh offer to sell at the new price.

34. The facts here, I am satisfied, do not support that conclusion. There was evidence by Mr. Turner, a director of the seller, that he was very anxious indeed to conclude this contract and that evidence was not challenged. He was under considerable pressure from the concessionaire in England through whom all Ferrari cars for sale in Hong Kong had to come, to produce the purchase money and this was a very substantial amount. He was only too anxious to conclude this deal. It is not suggested that the way in which he had gone about calculating this new price was not bona fide. There is no suggestion, for instance, that the list price which was put out and was referred to on 17 April 1990 was a false list price even though there was a substantial increase from 1989. This was not a list price plucked out of the air just for the benefit of this one buyer.

35. I also find some help from what Lord Wilberforce said in Woodar Investment Development Ltd. v. Wimpey Construction UK Ltd [1980] 1 WLR 277, at p. 283, that the proposition that a party who takes action relying simply on the terms of the contract and not manifesting by his conduct an ulterior intention to abandon it is not to be treated as repudiating it. He agrees with what was decided in James Shaffer Ltd v. Findlay Durham & Brodie [1953] 1 WLR 106 and by Sweet & Maxwell Ltd v. Universal News Service Ltd.

36. Even in the solicitors' letter which was finally sent on behalf of the buyer on 12 July 1990 reference was made to the options which they considered were then available to the seller, not to the seller being in breach of contract. There was no reference, even though this was a late stage of the dispute, to the contract having been repudiated. There was no indication whatever that I can see that the buyer was dissatisfied with the price. He did query it but the main thrust of the negotiations on the part of the buyer was to try and avoid having the car registered in Hong Kong and so having to pay the First Registration Tax. Clearly he wanted the car shipped somewhere else, possibly to England where he was then living. I can see no suggestion from the contemporaneous correspondence that the buyer in any way considered the demand for the increased price as a repudiation of the contract by the seller.

37. I am satisfied that on the particular facts of this contract the buyer's claim that the seller had repudiated cannot succeed and I also would allow this appeal.

38. The appellant is to have its costs here and below.