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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Smith v Artsanna Spa [2001] EWCA Civ 1232 (18 July 2001) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2001/1232.html Cite as: [2001] EWCA Civ 1232

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IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE LUTON COUNTY COURT
(HIS HONOUR JUDGE VILJOEN)

		Royal Courts of Justice Strand London WC2A 2LL Wednesday 18 July 2001

1. LORD JUSTICE JONATHAN PARKER:I will ask Lord Justice Longmore to give the first judgment.
2. LORD JUSTICE LONGMORE: This case raises once again the question whether a contract was concluded. In this case the alleged contract was for the sale of rotational moulding tools, sometimes called "moulds", for the making of play equipment for children of pre-school age. We have seen examples of brochures for these products which include items such as a "Climbasaurus Activity Centre" and a "3-Tot Rocker". This last is described as "designed for rocking action by one, two or three children seating one child on a rocking horse, two on a see-saw or three on a rocker". The moulds were originally used for and used by an American company which got into financial difficulties. It was taken over by a Corporation called F F Acquisition Corporation or, more informally, Flexible Flyer Toy Company ("Flexible Flyer"). But the moulds were, at the time of the events with which we are concerned, in a factory in Wales and not required for use by Flexible Flyer itself.
3. The moulds were put on the market for sale and Mr Mike Smith, trading under the name Brook House International, became aware of their availability. He made and circulated a list of the play equipment made by the moulds. He intended to buy the moulds from Flexibile Flyer and then to sell them on to any interested party. Having little (if any) capital himself, there would have to be a simultaneous transaction whereby on the same date and at the same time he acquired title from Flexibile Flyer, he would transfer the title to any purchaser. Any purchaser would need to be reassured that, in making or selling the products of the moulds, he was not infringing any patent or any trademark, copyright or design rights which may have previously been in existence.
4. One company that expressed an interest was an Italian organisation in Como called Artsana SPA who had an English agent in Nottingham called Chicco (UK) Limited whose managing director was David Welsh. It was Mr David Welsh who conducted the essential negotiations on behalf of the purchasers, Artsana, with Mr Smith on his own behalf as the potential seller. The question is whether a binding contract was ever concluded between them.
5. On 29 May 1998 Artsana expressed an interest in Mr Smith's proposals for the sale of the moulds. On 2 June Mr Smith said that he had asked for written assurances from America that when selling the tools he, Mr Smith, would own the patents and design rights so that no-one could look to any potential purchaser for royalties.
6. He got that assurance from Flexible Flyer on 22 June. On 23 June he confirmed to Mr Welsh that that was the position. He agreed that the moulds could be inspected with a view to purchase provided that Artsana agreed, as they did, that Flexible Flyer marks would be removed from the tools and the brand name Flexibile Flyer would not be used in connection with the products. In return for that, he said that Artsana would be able to use the trade names of the products such as, for example, "3-Tot Rocker".
7. Inspection took place, as envisaged, in Swansea on 9 July, after which there was no immediate reaction from Artsana. Mr Smith put some pressure on them to make a commitment. On 28 July Artsana authorised Mr Welsh to confirm a purchase with a limited amount as a deposit but certain matters needed to be clarified.
8. The critical day in the history is 30 July. First, there was a telephone conversation between Mr Smith and Mr Welsh. The learned judge seems to have thought that agreement was reached on certain matters in this conversation, but that, at least some matters which required clarification were material so that there was no concluded agreement on the telephone at that stage. The judge found that it was agreed in principle that 21 Flexible Flyer moulding tools were to be sold by Mr Smith to Artsana at a price of £120,000, of which £6,000 was to be payable immediately by way of deposit with a balance payable on 7 September. That date was to be treated as the date of delivery, Mr Smith being at risk until that date.
9. The first fax of that day was sent by Mr Welsh in the following terms:

"Dear Mike

RE PURCHASE OF FLEXIBLE FLYER TOOLING/MOULDS

Following our telephone conversation today, I hereby confirm that our Parent Company in Italy want to proceed with the purchase of the tools for 21 items of Flexible Flyer. It has been agreed that the purchase price for the complete moulds inspected by our Mr Rusconi (see attached list) will be £120,000 sterling and this will be secured by an immediate deposit of 5% (£6,000) with the balance payable by the 7th September 1988.

As the moulds are stored in company T and D Roto Moulding, you will accept responsibility for the safe keeping and condition of these moulds until we pay the balance on 7th September. If at any time between the payment of deposit and final payment the moulds are not complete or as inspected, we need a guarantee that the above mentioned deposit will be refunded.

We also need the following points clarified:

1.Brook House International will guarantee the free storage of the tools for period to the end of September.

2. Up until the final payment, Brook House International will protect us for the integrity of the tools of our property stored at T and D Roto Moulding.

3.Brook House International will confirm in writing they have the exclusive rights to sell the moulds as per the attached list.

4.Being US company owned moulds, Brook House International will confirm they have the royalties regarding world-wide exclusive rights for production and sale of the items as per the attached list. They will also check and inform us that no other series of tools like this does exist in the USA.

5.The following documents must be released by Brook House International to us upon delivery of the tools:

(a) Invoice with detailed list of tools of each item with single value of each item (to be agreed).

(b) Confirmation in writing from Brook House International of the US safety standards the attached list comply with and if possible, any copies of US safety standards.

(c) Brook House International to contact US previous owner to see if it is possible to provide us upon delivery, drawings/original technical specifications for each tool.

Summary -

I hope that the above covers everything at this stage. I await a reply along with your invoice for the deposit in order that we can make the payment and secure the purchase of the moulds.

Thanks and best regards.

David."

10. That fax met with a response from Mr Smith which read, relevantly, as follows:

"Dear David

Thank you very much for your fax and I reply as follows:

Paragraph 1 - I'm quite happy with the deposit provided it's on my desk in the morning with the balance by latest the 7th September.

I am quite happy to accept responsibility for the safe keeping of the moulds.

The moulds are guaranteed to be the ones that have been inspected and in the same condition.

We will sort free storage out until the end of September.

Your Item 2 - Yes we will certainly give you the protection of integrity of the tools.

The moulds are for sale exclusively by me and have been purchased directly via the USA and in doing so I have bought all Trade Marks, Design Rights and have paid a Royalty Fee. The USA have confirmed in writing that these moulds can be sold anywhere without restriction.

I will check with the USA to see if there are any other tools in existence but bearing in mind the conversations we have had and the problems encountered with the number of take overs of this particular group I would find it very doubtful that I would get this information and certainly not for some time. Having said that however, I think that if the Americans had got any duplicate tooling they would have excluded the States and Canada in their many conversations by fax with me.

The following documents will be released by Brook House International upon your collection of the tools with:

a)A detailed list of tools with single value for each item which we have yet to discuss.

b)The Safety Standards we have broached on before which will be shown later on in this fax.

c)I will contact the Manufacturers of these moulds who I understand produce Rolls Royce quality Roto Tools to see if it's possible to get drawings, complete original specifications but this cannot form part of the contract with yourselves.

Had this question been asked a long time ago I would by now of course had an answer for you.

....

In acknowledging your fax which I am using as an Order I also need to make the following points.

The balance must be paid to me by cleared funds, Bank Transfer, Bankers Draft on or before Monday the 7th September."

11. The five matters of which Mr Welsh had sought clarification were thus answered, save perhaps for item 4 in the first fax. The judge said of this exchange of faxes:

"On the face of it he [Mr Smith] has complied on every point that concerned the purchasers in the earlier fax that day."

12. On the same day, 30 July 1998, Mr Welsh expressed a concern to Artsana that Mr Smith had not given him any actual document about his ownership of the moulds. It is to be noted, however, that no specific request for any such document had been made in Mr Welsh's first fax of that day to Mr Smith. Mr Welsh suspected, apparently correctly, that Mr Smith did not own the moulds at that time since, as I have said, Mr Smith had always intended a simultaneous transaction whereby he would acquire ownership from Flexibile Flyer at the same time as he passed title of the moulds to Artsana. It was to turn out that documentary proof of ownership was something that was to be important to Artsana. No deposit was forthcoming immediately or at all, although in response to Mr Smith's persistent enquiries, a photocopy of the cheque for the deposit was sent to Mr Smith, but no actual cheque was ever sent.
13. There matters rested. The next communication from Chicco (UK) Limited was not from Mr Welsh but from their financial controller, Mr Graham Scott, who sent a fax of 20 August in the following terms:

"In accordance with instructions from our Parent Company in Italy, we must therefore ask for the following to be made available to us, before the deal can be finalised and monies paid over.

1.If the moulds have been purchased from a receiver or liquidator, then you will have a bill of sale together with some form of certificate of ownership or legal title to the goods. If the moulds have been purchased from another company, there will be a commercial invoice to confirm the transaction. We require sight of a copy of this documentation, even if it is modified to omit the money amounts involved.

2.In your fax to David of 30 July you confirm that you have bought all Trade Marks, Design Rights and have paid a Royalty Fee. We require sight of a copy of the document of transfer relating to these rights and a copy of the document from the USA which confirms that the moulds may be sold anywhere without restriction."

14. This went well beyond the clarification requested in the first fax of 30 July and no such documentation was immediately forthcoming. On 28 September, after some further negotiations had proved fruitless, Artsana wrote to say that they had decided not to proceed with the business.
15. If, therefore, there was a binding contract of sale and purchase made on 30 July, Artsana had no right later to impose a requirement of documentary proof of ownership. If there was not a binding contract on that date, then it is not suggested that there was a binding contract made at any later date and Artsana were entitled to withdraw from the transaction at any time for whatever reason that appealed to them.
16. The case pleaded was that a binding contract had been made by Mr Smith and Mr Welsh on the telephone on 30 July. To some extent that pleading governed events at trial because, when Mr Smith came to be cross-examined on his written witness statement by Mr Stevens, counsel for Artsana, Mr Smith candidly said that he did not really recollect the telephone conversation in any detail. He was not then substantially cross-examined further and Mr Stevens sought to submit at the end of the claimant's evidence that there was no case to answer. We are told that the judge said that he would put Mr Stevens to his election in the sense that if he, the judge, were to rule adversely to Mr Stevens, Mr Stevens would then be deemed to have elected to have called no evidence. Mr Stevens decided he would prefer to call evidence and he called Mr Welsh.
17. In the course of speeches, submissions were made as to the effect of the two faxes of 30 July. Mr Stevens said, in terms, to this court that he took no objection to an argument being mounted that a contract did come into existence on the terms of the two faxes.
18. The judge held that no binding contract was made on the telephone. That seems to me an inevitable finding on the evidence and, although Mr Shanks, who appears for Mr Smith but did not appear below, did argue somewhat feintly that that was a possibility, it seems to me that any such argument is quite hopeless.
19. However Mr Shanks submitted in an attractive argument that a binding contract was indeed concluded by the exchange of faxes of 30 July. We infer that that argument was also made to the judge below since he sets out the critical terms of the second fax and a considerable amount of the subsequent history of the matter in some detail. The judge concluded:

"Now I have looked at these documents very carefully and I have listened with great concentration on the evidence particularly of Mr Smith and Mr Welsh. They were both anxious to conclude this deal, but at the end of the day Mr Welsh and his Italian colleagues became too apprehensive and thought that the risk of going ahead was too great for them and they withdrew, and Mr Smith now invites me to say that there was a concluded transaction.

I have concluded that there was no concluded transaction. The evidence seen and read, all the documents before the 30 July as well as those following the 30 July, would indicate to me that the parties were still in a negotiation position. Both wanted the deal to be concluded. The Italians were anxious to purchase these moulds, and hence the use of the phrase, 'We want to proceed'. That was an expression of intention but until they were satisfied about a number of matters they were not prepared to commit themselves, and particularly Mr Welsh was very cautious in parting with money unless he could be satisfied as to the ownership.

....

I think that the [Claimant] himself realised at the time that there was no concluded deal, because on that crucial day, the 30 July, he sent a fax to Flexible Flyer in the States and the opening paragraphs reads as follows:

'I am very pleased to say that today I have concluded a deal for the tooling in as much that I have got a letter of intent and am having sent to me a small holding deposit.'

What can be clearer of the Claimant's state of mind than that paragraph? If a transaction had been concluded he would have said, 'I have sold the moulds today', but he does not, he says, 'I have no more than a letter of intent'.

At all times I am satisfied that the Defendants wrote that letter on the 30 July at page 118 expressing their desire to conclude the transaction but only if they were satisfied on the points that they seek to be clarified. I accept that on that date a number of matters had been concluded once and for all. I accept the submissions made to me by Counsel for the Claimant, the price was agreed, that the specific goods were known and defined, the delivery date had been agreed, a deposit had been arranged and storage arrangements had been made. But the matters that concerned the Defendant were material to concluding this transaction and until they were satisfied on that there was no concluded transaction. They were never satisfied on that and never concluded the agreement. So the Claimant's claim must fail in totality."

20. Mr Shanks criticised the judge in two respects: (i) for relying too heavily on matters which arose after 30 July when the contract was allegedly concluded, and in particular on Artsana's wish for documentary proof of ownership which had not been raised between the parties at all at that time; and (ii) for relying on what he took to be Mr Smith's view of the matter as set out in the fax he sent to Flexibile Flyer referring to his having obtained a letter of intent.
21. Those criticisms are, in my view, fair criticism. The matter has to be judged as it would appear to an informed but objective observer at the time it was alleged that the contract was concluded. An uncommunicated wish on the part of Artsana to have documentary proof of ownership and Mr Smith's own thoughts on the matter are not relevant to that question. But the issue is not whether the judge may have relied on matters which were strictly speaking irrelevant, but whether he was right to decide that at the end of 30 July "the parties were still in a negotiation position".
22. As to this, Mr Shanks relied on the judge's own statement that, "On the face of it Mr Smith complied on every point that concerned the purchasers in the earlier fax that day".
23. That is not however inconsistent with the conclusion that the parties were still negotiating. Mr Shanks submitted that the first fax of 30 July constituted an offer capable of being acceptance and that the second fax was such a deemed acceptance.
24. This was a forceful submission. My mind has waivered during the course of the argument. In my judgment, however, although the first fax was capable of being clearly accepted, it was not so accepted by Mr Smith. It is paragraph 4 of the requested clarification that gives rise to the difficulty from Mr Smith's point of view. Mr Welsh requires confirmation that Mr Smith has and will transfer royalties regarding world-wide exclusive rights for production and sale of the equipment. The answer is:

"I have bought all Trade Marks, Design Rights and have paid a Royalty Fee. The USA have confirmed in writing that these moulds can be sold anywhere without restriction."

25. This is a small point but to my mind that is not an unqualified "yes" to the request for confirmation that Mr Smith has the royalties for world-wide exclusive production and sale since the word "exclusive" is not unequivocally to be implied into Mr Smith's response. More importantly, there is Mr Welsh's request that Mr Smith should check and inform Artsana that no other series of tools, like the tools subject to the alleged contract, does exist in the USA. This requires an unequivocal acceptance that if, after checking, it appears in the future that other similar tools do exist in the United States of America, Mr Smith would be in breach of contract. But his answer was as follows and I quote again:

"I will check with the USA to see if there are any other tools in existence but bearing in mind the conversations we have had, and the problems encountered with the number of take overs of this particular group I would find it very doubtful that I would get this information and certainly not for some time. Having said that, however, I think that if the Americans had got any duplicate tooling they would have excluded the States and Canada in their many conversations by fax with me."

26. I cannot read that response as an unequivocal acceptance that Mr Smith is agreeing to take responsibility for the possibility in the future of it turning out that tools similar to the subject matter of the alleged contract do exist in the USA. It is, and I think it is intended to be, equivocal about that matter. Therefore, in my judgment, no clear acceptance occurred and the matter is as the judge said, "left in the realm of negotiation".
27. It does appear that to some extent the learned judge was influenced by the fact that he considered, correctly, that the response given by Mr Smith in his answering fax of 30 July in relation to his having purchased the moulds himself, and bought all trade marks and paid a royalty fee, was in fact a false answer. However that may be, I was persuaded for myself by Mr Shanks that that was an irrelevant consideration when the question is whether a binding contract was made for or not.
28. For the reasons I have given, I do not think a binding contract was made and I would dismiss this appeal.
29. LORD JUSTICE JONATHAN PARKER: I agree.
Order: Appeal dismissed with costs. Public funding assessment to be adjourned to the Costs Judge.