W H Smith Travel Holdings Ltd v Twentieth Century Fox Home Entertainment Ltd

Factual and Procedural Background

This appeal concerns an order made by His Honour Judge Havelock-Allan QC in the Bristol District Registry of the High Court, awarding judgment to the Plaintiff in the sum of £1,215,000 against the Defendant. The dispute arose from a trading relationship between the parties from 1999 to 2006, during which the Defendant supplied film products for retail sale in the Plaintiff’s stores. The relationship was governed initially by a Vendor Buying Agreement dated 17 July 2002, later superseded by a similar agreement in 2005.

The trading relationship was complex, involving sale or return arrangements, varying film prices, promotional discounts, and differing ledger practices. The Plaintiff and Defendant each maintained separate ledgers, with the Plaintiff issuing debit notes for disputed invoices and the Defendant issuing credit notes internally, which the Plaintiff did not accept as contractual documents. The Defendant’s bookkeeping was outsourced, with a system of bulk clear downs that mismatched credit and debit notes, complicating reconciliation.

At the end of the relationship in 2006, both parties claimed substantial sums were owed by the other. By trial, the dispute narrowed to the Plaintiff’s claim for approximately £1,276,000, which the Defendant denied owing. The trial judge found that the transactions were not recorded in a running account and that the Plaintiff had discharged the legal burden of proof, while the evidential burden shifted to the Defendant to prove that credit notes had been exhausted, which the Defendant failed to do. The Defendant appeals, challenging the judge’s findings on the existence of a running account and the burden of proof.

Legal Issues Presented

1. Whether the transactions between the parties were recorded in a running account.
2. Whether the trial judge erred in his approach to the burden of proof regarding the Plaintiff’s claim and the Defendant’s counter-assertions.
3. Whether the Defendant discharged any evidential burden to prove that credit notes had been properly off-set against debts.

Arguments of the Parties

Defendant's Arguments

• The judge erred in concluding there was no running account; the ledger was a true running account reflecting the parties’ continuous trading relationship.
• The legal and evidential burden of proving the claim rested on the Plaintiff throughout, as the claim was for the balance of a running account.
• The Defendant had discharged any burden of proof by producing ledger documents and evidence at trial demonstrating proper off-set of credit notes.
• The balance in the Defendant’s ledger represented true receivables, and it was logically impossible for credit notes to remain unoff-set.
• The judge failed to give proper weight to the ledger as a business record and erred in doubting its reliability.

Plaintiff's Arguments

• The relationship was not governed by a running account but by separate ledgers maintained independently for accounting purposes.
• The nature of the trading relationship, including the terms of the Vendor Buying Agreement and standard conditions of purchase, was inconsistent with a running account.
• The evidential burden lay on the Defendant to prove that the credit notes had been properly off-set against debts, which the Defendant failed to do.
• The Defendant’s ledger was unreliable due to mismatching of credit and debit notes, complicated bookkeeping practices, and concessions made in the course of audits and investigations.

Table of Precedents Cited

Court's Reasoning and Analysis

The court carefully examined the nature of the parties’ trading relationship and the accounting practices employed. It found that the transactions were not recorded in a true running account because the parties maintained separate ledgers for their own accounting purposes, and there was no agreement that the Defendant’s ledger represented a running account of the Plaintiff’s indebtedness. The terms of the Vendor Buying Agreement and the Plaintiff’s standard conditions of purchase required individual settlements and timely payments rather than a continuous running account.

The court acknowledged that the legal burden of proof rested on the Plaintiff as the claimant, but given the Defendant’s admission of credit notes to the value claimed, the evidential burden shifted to the Defendant to prove that these credit notes had been properly exhausted by off-setting against debts. The Defendant failed to discharge this evidential burden due to the complexity and unreliability of its ledger, the mismatching of credit and debit notes, and concessions made during audits.

The court found the Defendant’s argument that a balance of unspent credit notes was a logical impossibility unpersuasive, noting that debit notes could arise from stock returns after full payment, creating credits that do not cancel debts. The court was not persuaded by the Defendant’s witnesses, finding the Plaintiff’s witnesses more credible and the ledger figures unreliable due to the bookkeeping practices and concessions.

Although the court recognized an error in the judge’s understanding of the ledger balance figure, it concluded that this did not undermine the judge’s overall findings concerning the burden of proof and the lack of evidence establishing that the credit notes had been properly off-set. Consequently, the judge’s rejection of the Defendant’s case was upheld.

Holding and Implications

The court DISMISSED the appeal.

The direct effect of this decision is that the Plaintiff’s claim for the sum of approximately £1,215,000 is affirmed, confirming the trial judge’s findings that the Defendant failed to prove the proper off-set of credit notes and that the transactions did not constitute a running account. No new precedent was established beyond the application of existing principles to the facts of this case.