The Court of Appeal has addressed a number of issues typically encountered in disputes relating to the sale of goods in Hughes v Pendragon. The claim required the court to consider the following issues:

  • had the parties entered into an "agreement to agree", rather than a contract for sale, because the price and specification for the goods were to be agreed later?
  • was there a collateral contract, overriding the terms of the standard-form sale contract the parties signed?
  • what was the measure of damages when the seller failed to deliver what were goods that were in such high demand that substitute goods were not available?

Blog by Adam Forster and Tim Brown

The circumstances of the dispute were described by the court as "somewhat unusual". The origins of the dispute lay in:

  • the manufacture of a small number of high performance vehicles, where demand would never be satisfied;
  • an assurance by a seller that if allocated one such vehicle by the manufacturer, the customer would be first in the queue to obtain it, since he had been first to pay a deposit; and
  • the decision of the seller to sell the one vehicle the manufacturer allocated to the seller, to someone who paid a deposit later, on the basis that it was thought that the first customer would resell it for profit rather than keeping it, effectively, as a collector's item. 

Factual background

In early 2011, the Claimant (and Appellant in the Court of Appeal) (Mr Hughes) learned that Porsche was about to manufacture what would be the last incarnation of the 4 litre engine Porsche 911 GT3. Mr Hughes contacted the defendant Porsche dealership (Pendragon) on 15 March 2011 to say that he wished to place an order for the limited-edition "GT3 4 litre, subject to price and availability". On 18 March, Pendragon telephoned Mr Hughes and informed him that he needed to attend the dealership that day to pay a £10,000 deposit if he wanted to be first on the list, subject to Pendragon receiving an allocation of the vehicles.

Mr Hughes visited Pendragon's premises that afternoon and duly paid the deposit. He also signed a "Vehicle Order Form" (albeit in his evidence, he maintained that he did not recall doing so or, indeed, ever having seen the document) stating that he agreed to purchase the vehicle subject to the terms and conditions in the document. The words "Subject to Price + Spec" were written across the face of the box dealing with description and price. The document also stated,

"This document contains the terms of a contract and includes the Terms and Conditions attached. Sign it only if you wish to be legally bound by them."

Other notable terms and conditions included:

  • Clause 2 "Delivery" (b): "the Seller shall not be obliged to fulfil orders in the sequence in which they are placed."
  • Clause 5 "Deposits" provided that deposits should be paid to Pendragon as stakeholder and that "(d) within 14 days of receiving notification from the Seller that the goods are ready for delivery the Purchaser shall pay to the Seller the balance of the purchase price of the goods, being the difference between the Importer's recommended retail price of the goods and any deposits paid by the Purchaser under sub-conditions (b) or (c) above and any accrued interest thereon."
  • Clause 18: "No verbal arrangements can be recognised by the Seller and no variation or modification of these terms and conditions shall be in any way effective unless in writing and signed on behalf of the Seller by a director or authorised signatory thereof."

On 23 March, a Mr Mansfield of Pendragon wrote to Mr Hughes stating: "I can confirm that you have placed a £10,000 pounds deposit and placed an order for the next version of the GT3. I can also confirm that you will get the first one from Porsche Centre Bolton if we get one, which I am very confident that we will…"

Pendragon was subsequently allocated a GT3 from Porsche, but sold it to a different customer in spite of what Mr Mansfield had said to Mr Hughes.  Mr Hughes repeatedly attempted to learn whether Pendragon was going to be allocated a GT3 and as late as in July 2012, Pendragon informed Mr Hughes that despite attempting to obtain a GT3 for him, it had been unable to do so "due to Porsche allocation". That statement was a straightforward lie.

Mr Hughes issued a claim for damages for breach of contract or for specific performance of the contract. By the time of the trial, the claim for specific performance had been abandoned. Damages were said to be the difference between the list price, which Mr Hughes contracted to pay, and the current market value according to expert evidence. In its defence, Pendragon argued that the contract terms were uncertain until the price and specification were agreed. Further, Pendragon said that Mr Hughes could have purchased a GT3 model elsewhere in the Porsche dealer network.

The claim was dismissed in the County Court (to which the case had been released by the designated civil judge for Lancashire) on the ground that there was no contract, but only an agreement to agree. Even if there was a contract, the County Court found it could not be said to have been breached because Pendragon was not obliged to fulfil orders in the sequence in which they were placed. Mr Hughes duly appealed the first instance decision.

Decision

The Court of Appeal allowed the appeal and awarded Mr Hughes £35,000 for breach of contract.

At first instance, the County Court judge's conclusion that there was no contract was based, in part, on the fact that there was no vehicle, no price and no delivery date. The judge's view that there was no contract, but merely an expression of interest, simply did not accord with what had actually happened. However, the judge at first instance neglected to consider whether a collateral contract was created on 18 March 2011 (of which the email from Mr Mansfield on 23 March was evidence) which had the effect of varying clause 2 of the written terms and conditions (as set out above).

In the Court of Appeal's judgment, the Vehicle Order Form signed on 18 March 2011 was plainly a contract to purchase the vehicle, subject to the contingency of Porsche allocating a vehicle to Pendragon. There was an express statement that the Vehicle Order Form contained the terms of a contract and it incorporated the terms and conditions. Those terms and conditions had "all the hallmarks of what one would expect with an agreement to sell a motor vehicle, including a proper law and a jurisdiction clause". It was more than just an agreement to agree, even though it was subject to price and specification; it was a contract between Mr Hughes and Pendragon for the sale of the Porsche to Mr Hughes.

The Court of Appeal also held that a collateral contract had been entered into, pursuant to which Mr Hughes would be the first in the queue if Porsche supplied a vehicle to Pendragon. The fact that at the time of entering into the contract, there was no vehicle, no agreed price and no delivery date, was not fatal to the existence of the contract. The court found there to be "ample authority[1] that the courts may treat a statement intended to have contractual effect as a contract collateral to the main transaction, in particular where one party enters the main contract because the statement is an assurance on a certain point". As such, Mr Mansfield's oral statement (made on 18 March) was intended to have contractual effect, the consideration for which was Mr Hughes' entry into the main contract, namely the written contract of 18 March 2011. That oral statement alone was sufficient to create the collateral contract, with the email of 23 March serving simply as corroborative evidence.

The Court of Appeal observed that section 51(3) of the Sale of Goods Act 1979 (SOGA 1979) provided the basis for the assessment of damages for non-delivery of goods. Ordinarily, damages would be the difference between the contract price and the current market price at the time when the goods ought to have been delivered (or if no time was fixed for delivery, at the time of the refusal to deliver). However, in cases such as this where there was no readily ascertainable market for the product, damages were to be based on the value of the product at the time and place of breach, which may be assessed by any relevant evidence (section 51(2), SOGA 1979). In this case, as the Porsche GT3 was a rare and unusual product, there was no evidence of a market (i.e. other limited-edition Porsche GT3s being available and freely sold), but there was some evidence of the value of similar vehicles. As such, the Court of Appeal found that damages amounted to the difference between the price which Mr Hughes would have paid for the Porsche when available and the price of the nearest equivalent Porsche.

The Court of Appeal also found that there was a collateral contract that, if Porsche had supplied a vehicle to Pendragon, it should have been allocated to Mr Hughes. He had ordered the vehicle and paid the deposit on 18 March because of Pendragon's assurance that he would be first in the queue if it received an allocation from Porsche. That statement was intended to have contractual effect, and Mr Hughes provided consideration for it by entering into the main contract for the sale of the vehicle. The effect of the collateral contract was to vary clause 2(b) of the terms and conditions, which would otherwise have permitted Pendragon to fulfil orders out of the sequence in which they were received.

Clause 18 was not effective to prevent the collateral contract taking effect. Accordingly, Mr Hughes was entitled to damages for breach of contract.

Points to note for practitioners

The decision is a reminder that where oral statements are made in the hope of encouraging a buyer to enter into a sale and purchase contract, if those statements depart from the written terms of the contract, they may render the written terms ineffective. A general contractual term which purports to exclude oral statements and which requires variations to be in writing and signed (as there was in this case) may not suffice. It would always be prudent for sellers to include entire agreement clauses in their contracts. From a practical perspective, sellers should also try to make sure that any sales staff who deal directly with customers, do not offer assurances that go beyond the contractual terms.

The decision also provides useful guidance on the type of evidence which may be relied upon when calculating damages where there is no market in which an unhappy buyer may purchase replacement goods. In addition, it offers a useful example of the appliction of section 51(2) of SOGA 1979, which provides that the overriding measure of damage is the estimated loss directly and naturally resulting, in the ordinary course of events, from the seller's breach of contract.