JD Cleverly Ltd & Anor v Family Finance Ltd

Whether an invoice sent by a dealer to a finance company creates a contract of sale depends on the objective meaning of the documents and the parties’ conduct. Where the invoice specifies a different mechanism for forming a contract, it is not ordinarily an offer merely because it is addressed to the finance company and payment follows. A contract can be implied from conduct only where that implication is necessary because there is no other explanation for the parties’ actions. Payment may instead discharge an intermediary’s debt or provide loan finance. The party asserting a sale bears the burden of excluding those alternatives.

Gwent Fleet Management Ltd arranged vehicle purchases through motor dealers and obtained finance from Family Finance Ltd. The dealers invoiced Family Finance at Gwent’s request, and Family Finance paid the invoices after entering into hire purchase agreements with Gwent. When Gwent’s fraud was discovered, both the end-users and Family Finance claimed title to the vehicles.

In twelve related Cardiff County Court claims, His Honour Judge Chambers QC held that the invoices, followed by Family Finance’s cheques, constituted contracts of sale between the dealers and Family Finance. The dealers appealed. The central issue was whether the documents and conduct objectively established such contracts.

The appeal was allowed. Lord Justice Tomlinson delivered the judgment, with which Lady Justice Arden and Lord Justice Pitchford agreed.

1. Formation by conduct. The party asserting a contract implied from conduct must show that implication is necessary to give business reality to the transaction and create enforceable obligations. If the parties could have acted as they did without a contract, there is no necessity to infer one. This reflects the distinction between an express contract, where intention may commonly be assumed from sufficiently certain words, and an implied contract, where necessity must be demonstrated.
2. Effect of the invoice. The invoice did not, on its terms, contain an offer to sell. Its conditions stated that a binding contract would arise only when an order had been signed by a sales executive. The court could not assume that a binding contract was intended while disregarding language bearing directly on formation. The invoice’s reference to Family Finance as the party from whom payment was due did not overcome that obstacle.
3. Alternative explanations. The invoice and payment were consistent with Family Finance discharging an existing or future debt owed by Gwent, or providing loan finance without acquiring the vehicles. Family Finance therefore had to produce compelling evidence that a sale to it was the only explanation. The evidence about motor-trade practice did not establish that conclusion, and there was no independent expert evidence.
4. Authorities. The court distinguished Homburg Houtimport BV and others v Agrosin Private Ltd and another (The Starsin) [2004] 1 AC 715, which concerned the construction of an existing contract, and distinguished Iveco Finance Ltd v Man Truck & Bus UK Ltd [2003] EWCA Civ 1613, where the invoices lacked the adverse formation language and the evidence supported the finance-company sale.

The finding that the invoices and cheques constituted sales, and the consequential order permitting judgment for Family Finance, were set aside. The court invited written submissions on the substitute order. It noted, without deciding, the proposed amendment to claim restitution on mistake and the possible defence of change of position.

• Court of Appeal (Civil Division) — [2010] EWCA Civ 1477: allowed the dealers’ appeal and set aside the finding that contracts of sale had been formed.
• Cardiff County Court — His Honour Judge Chambers QC held that the relevant invoices and Family Finance’s payments constituted contracts for the sale of the vehicles.