Taiwan Scot Co Ltd v The Masters Golf Company Ltd

Contractual rights are not ordinarily varied merely because parties enter negotiations. An agreement to negotiate is generally only an agreement to agree and does not, without a concluded variation, require a party to surrender existing contractual rights. Conduct during unsuccessful negotiations, attempts to calculate a contractual shortfall, replacement performance and correspondence seeking payment will not establish variation or waiver unless it clearly does so. A contractual interest rate agreed between commercial parties should not lightly be set aside as penal. A rate of 15% was not exorbitant in the economic circumstances prevailing when the agreement was made. The appeal was dismissed and the cross-appeal on interest allowed.

Taiwan Scot supplied golf clubs to The Masters Golf Company Ltd. Under a written agreement, Masters was to pay deferred consideration of US$160,000 after inspection of physical stock and delivery of any shortfall statement. The parties varied the dates for inspection and delivery of the statement. No statement was delivered by the varied deadline, and the county court held that the deferred consideration became payable, giving judgment for the unpaid balance.

The county court declined to award contractual interest at 15%, treating the rate as potentially penal. Masters appealed, arguing that subsequent negotiations and conduct had varied the agreement or postponed the payment obligation. Taiwan Scot cross-appealed on interest. The central issues were whether the contract had been varied or its rights waived, and whether the agreed interest rate should be enforced.

1. Disposition. The Court of Appeal unanimously dismissed Masters’ appeal and allowed Taiwan Scot’s cross-appeal.
2. Variation and negotiations. The parties had varied the inspection and shortfall-statement dates to 30 July and 2 August 2001. That variation did not extend the time for serving a shortfall statement indefinitely. Negotiations are not usually intended to replace existing contractual rights unless and until they produce an agreement. The negotiations here never produced an agreed shortfall statement.
3. Agreement to negotiate. An agreement to negotiate is ordinarily no more than an agreement to agree. It did not, on the facts, amount to an agreement by Taiwan Scot to forego its contractual entitlement to payment if negotiations failed.
4. Subsequent conduct. Taiwan Scot’s attempts to negotiate the shortfall, its manufacture or repair of replacement stock under the contractual option, and its solicitor’s letter did not establish a variation. That conduct was consistent with an attempt to obtain the sum properly due, and did not recognise that a shortfall statement had been served late or could be omitted.
5. Contractual interest. The county court’s assessment of the 15% rate was rejected. The rate was agreed by commercial parties and was not exorbitant in July 2001, when interest rates were higher. It should not lightly be set aside. Taiwan Scot was therefore entitled to 15% interest on US$160,000 from 3 August 2001 until the payment made on 8 January 2002, and at the same rate on the remaining balance until judgment. Thereafter the judgment sum carried interest at the judgment rate.

• Court of Appeal (Civil Division) — In [2009] EWCA Civ 685, the appeal from the county court was dismissed and the cross-appeal on contractual interest was allowed.
• Torquay and Newton Abbott County Court — The court held that the deferred consideration became due after no shortfall statement was delivered by the varied deadline, awarded the unpaid balance, and declined to award interest at the contractual rate of 15%.