Case No: 2009 FOLIO 289
Neutral Citation Number: [2010] EWHC 2429 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 04/10/2010

Before :

MR JUSTICE DAVID STEEL
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Between :

	CNH FINANCIAL SERVICES SAS	Claimant	
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	KRECENT TRADERS LIMITED	Defendant	
	- and -		
	CNH U.K. LIMITED	Third Party	

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MR PHILIP ALIKER (instructed by CHARLES DE ALWIS LIMITED) for the Claimant
MR AIDAN CASEY (instructed by MONROE FISHER WASBROUGH LLP) for the Defendant

Hearing dates: 28 SEPTEMBER 2010
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Judgment
MR JUSTICE DAVID STEEL : 
1.	This is an application by the claimant for summary judgment on its claim or in the alternative for a strike out of the defence and counterclaim.  The claim is in respect of the balance of account between a finance house (CNHF) and a dealer in construction machinery in the Republic of Ireland (KKT).  The sum outstanding in €1,206,512.72 a figure which is not in dispute.
2.	The focus of the defendant’s case are counterclaims totalling a greater sum than the claim which are put forward by way of set-off.  It is this at which the strike out application is primarily directed.  However, before dealing with the counterclaims, it is necessary to consider a new and unpleaded basis for challenging KKT’s liability for the balance of account.  This is said to arise from a Receivables Purchasing Agreement (RPA) dated 26 March 2007 between the claimant and the third party CNH UK.  CNH UK are the suppliers of the construction machinery for which CNHF (a company within the same group) furnishes finance.  
3.	The RPA makes provision for CNH UK to sell to CNHF all its UK and ROI receivables.  The mechanism for the sales was prescribed by clause 4 which makes provision for delivery and acceptance of “transfer documents” so as to achieve an assignment.  KKT now wish to contend that CNHF’s title to sue for the balance of account is dependent on pleading and evidencing the relevant assignments and the notice given of them.
4.	In one sense this is a somewhat arid debate since it would be open to CNH to cure any defect in title and/or give proper notice at any stage.  But KKT 	 rightly point out that such might render the assignments subject to equities including any rights set off otherwise available only against CNH UK.
5.	Given my conclusions on the application to strike out the counterclaims, it is unnecessary to dwell on this issue.  But the following points merit recording at this stage:
a)	The RPA clearly made provision for the transfer of all receivables to CNH.
b)	The underlying policy was explained to KKT in a letter dated 23 February 2007 whereby it was announced that effective from 27 March (the day following the date of the RPA) payments by KKT under the Dealer Agreement (DA) between CNH UK and KKT dated 31 January 2007, were to be made to CNHF so as to comply with a CNH group initiative to transfer receivables to CNHF.
c)	The Master Stocking Agreement (MSA) between CNHF and KKT dated 30 March 2007 offered finance to KKT in regard to sums both due under conditional sale contracts assigned to CNHF or otherwise.
d)	Thereafter, KKT recognised CNHF’s entitlement to payment in reimbursement of CNH UK’s invoices and the parties conducted their dealings on that basis.
In short, I regard the prospects of challenging CNHF’s existing title to sue as remote.  That said, I propose to consider the merit of the counterclaims on the assumption that they are potentially valid as against both CNHF and CNH UK.
6.	The starting point in respect of the first counterclaim is the agreement that arose from the meeting on 29 September 2008 between representatives of all three parties, including their lawyers.  It is common ground that immediately following the meeting the parties executed a Deed of Settlement (DOS) under which, as a result of financial adjustments made by both CNH UK and KK Traders, it was agreed that the balance of the sum due to CNHF was €1,259,728.
7.	The counterclaim is said to arise from a collateral oral agreement reached during the meeting.  This was provoked, it was claimed, by KKT’s complaint that other dealers were being offered better terms by CNH UK (in the form of “Help on Deal” (HOD), thus undermining their competitive position.  In the discursive pleaded case for KKT the negotiation and resulting collateral agreement are set out as follows:
“14. After a lengthy exchange at the said meeting it appeared progress was not being made and the meeting was adjourned.  Messrs Twomey and O’Sullivan went into the bar area of the airport to discuss matters, and they were joined by Steven Orr and Kevin Purcell.  The commercial issues that were proving to be ‘sticking points’ were discussed, including (a) some compensation to the defendant for its losses to date caused by (what the defendant contended to be) the ‘discriminatory pricing’ and (b) how pricing issues could be resolved going forward so that the defendant was not placed at a disadvantage vis-à-vis competitors.
15. After some discussion, Messrs Orr and Purcell on behalf of the claimant and/or CNH offered as follows:
(a) to increase the amount of ‘compensation’ for past losses to €650,000 (which would be afforded by reduction of the balance allegedly outstanding on the defendant’s account with the claimant);
(b) that the defendant would be entitled to be afforded HOD on each machine purchased by it so as to reduce the effective or ultimate price paid or payable by the defendant (after such HOD) to a level equal with the lowest price (after HOD and any other allowances and discounts) charged to any of the defendant’s competitors in the UK and the ROI (“the HOD term”);
(c) So far as clause 3 of the DOS and the schedule there referred to provided for prices to be charged upon future purchases, Messrs Orr and Purcell agreed (in the course of this discussion) that these would not be the ultimate prices, but rather they were the prices prior to the operation of the HOD term.
16. Messrs Twomey and O’Sullivan agreed to that, and in reliance upon such agreement signed the DOS (which was amended from the draft that had been discussed earlier at the meeting).”
8.	It is important to record that the claimants do not go so far as to say that a claim based on this alleged collateral agreement has only fanciful prospects of success.  But they do contend that it is improbable that it would succeed.  In my judgment that view is fully justified.
9.	As already recorded, the written deed of settlement was prepared and executed in the immediate aftermath of the negotiations, including the suggested agreement to accord KKT in effect most favoured customer status in the entire UK and ROI market.  It was prepared with the assistance of lawyers (and signed by them) yet no mention of this highly important if not fundamental outcome of the negotiations is made.
10.	This is manifestly difficult to reconcile with the express terms of the DOS:
a)	It recites that disputes had arisen between the parties in respect of which the agreement was in full and final settlement;
b)	It records that the only matter excluded from the settlement were disputes relating to warranties and spare parts;
c)	The parties expressly agreed that it constituted the sole agreement in regard to the disputes that had arisen;
11.	Indeed the contention involves the parties having met to resolve KKT’s principal complaint about undercutting but having reached agreement chose not record it yet at the same time took the trouble expressly to leave open a less significant dispute about spare parts and warranties for subsequent resolution under clause 4.  
12.	It is also difficult to reconcile with the probabilities.  There is no written record or minute of the meeting referring to this crucial head of agreement despite the parties practice of reducing their agreements to writing.  The only explanation tendered for the absence of any record of the collateral agreement in the DOS is a suggestion that the CNH UK representatives claimed that it “could not be written into the DOS” as it dealt with past issues only.  This would have been a strange explanation to the lawyers present not least because the express terms of the DOS go on to make detailed  provision for future trading.
13.	Furthermore it is in any event difficult to see any reason why CNH UK would be prepared to accord KKT most favoured dealer status let alone throughout the UK in addition to the ROI.  Indeed the DOS is expressly confined to the ROI and incorporates price guides for the ROI only.
14.	It is common ground that KKT failed to remit sale proceeds in accord with the DOS.  Thereby the balance of account became due whether under DOS or the MSA matters not.  As against that liability, even assuming that CNHF is exposed in respect of any breach of the collateral agreement in addition to CNH UK, such exposure is, I repeat, improbable.  I would add for good measure that the quantification of such a counterclaim, said to amount to over €800,000 in the period up to April 2009, made up of lost profit on sales that would otherwise have been achieved if given a most favoured dealer status, has minimal evidential support.
15.	I turn now to the second counterclaim advanced by KKT.  This arises out of a further agreement executed by CNH UK and KKT which as been referred to as the Stock Return Agreement (SRA).  It is set out in an email dated 26 November 2008.  This provided:
a)	for KKT to pay an additional sum in respect of part of its existing stock in support of an extended warranty;
b)	for the sale by CNH UK of specified new stock at a price of €687,250, shipment to be effected upon receipt of funds;
c)	upon receipt of those funds to complete that purchase, for KKT in addition to receive credit against a different part of the existing stock at the original invoice price, provided such stock be returned to at KKT’s expense in good condition;
d)	for KKT to receive further “retail support” for existing stock so as to match prices under the DOS in the sum of €79,179.01.
16.	The pleaded complaint by KKT is that CNH UK expressed a wish at a meeting on 11 December to inspect the returned existing stock at Basildon.  This was said to be a repudiatory breach of the original agreement being an insistence on a new inspection provision.  This is a surprising contention given that some form of inspection must have been anticipated at some stage in order to assess the condition of the machinery and the SRA expressly contemplates the return of the machinery to either or Zeebrugge.
17.	Nonetheless the claimants once again do not contend that this counterclaim has no realistic as opposed to fanciful prospect of success.  But equally in my judgment the merits appear improbable.  This is the more so, given the letter written on 12 December by KKT’s Irish solicitors which would appear at first blush to be in large part contradictory to and inconsistent with the SRA.  In that letter, it was insisted despite the terms of the SRA:
a)	that CNH inspect the stock at KKT’s premises and the right to reject would be lost upon delivery to Zeebrugge or Basildon.
b)	that the new stock be delivered before payment (or only on basis of delivery of a banker’s draft to the solicitors to be held in escrow).
c)	that CNH UK should pay for transport of the new stock “Cork FOB Zeebrugge” (sic).
In the light of that letter it is perhaps not entirely surprising that by an email dated 17 December CNH UK purported to treat the SRA as terminated by way of acceptance of KKT’s repudiatory breach.
18.	As before, I will, solely for the purposes of this judgment, treat CNHF as a party to the SRA although it did not execute it (the only express reference to CNHF being a record of a conversation leading to agreement on the machinery for invoicing for the new stock) or otherwise exposed to the counterclaim.  But whole basis of the counterclaim is improbable on the facts.
19.	As regards quantum, KKT claims both the original invoice price of the retained stock (€557,578) and the agreed credit (€91,179.01) although it is accepted that this fails to give credit for the value of the stock which would otherwise have been returned and which by definition would only have been eligible for rebate if in good condition.
20.	Against that background, it appears to me to be entirely appropriate to make a conditional order pursuant to CPR 24 PD 5.  Thus I would not accede to the application for summary judgment and/strike out but only on the basis that KKT to pay €1.2 million into court.