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

An account is a true running account only where the parties expressly or impliedly intend that the monetary outcome of each transaction will not be settled separately, but will be brought into a single account producing one ultimate balance. Long duration, high volume and ledger entries are insufficient. Contractual provisions requiring invoicing, payment, deductions or settlement by reference to individual supplies point away from that characterisation. Where valid credits are admitted but their alleged set-off depends on unagreed receivables, the party asserting the set-off bears the evidential burden of proving those debts and the proper application of the credits. An unreliable ledger does not discharge that burden.

Fox supplied film products to W H Smith for several years under written trading agreements. The parties maintained separate ledgers, and their accounting records became difficult to reconcile because of returns, discounts, debit notes and credit notes.

After the trading relationship ended, W H Smith claimed sums which the parties accepted had at one time been due to it. Fox argued that those sums had already been offset against receivables recorded in its ledger. The High Court gave judgment for W H Smith in £1,215,000. Fox appealed, principally challenging the characterisation of the account and the allocation of the evidential burden. The central issue was whether the dealings formed a true running account and, if not, which party had to prove that the credits had been exhausted.

Appeal dismissed. The Court of Appeal upheld the judgment for W H Smith, subject to the £61,000 already allowed below.

1. A true running account exists where the parties have expressly or impliedly agreed that the monetary outcome of individual transactions will not be settled separately. The transactions instead produce reciprocal credits and debits and a single liability determined by the ultimate balance. The court applied the principles discussed in In re Charge Card Services Ltd [1987] 1 Ch 150, Rolls Razor Ltd v Cox [1967] 1 QB 552 and Airservices Australia v Ferrier and Anor (1996) 185 CLR 483.
2. The length and scale of the trading relationship, the use of credit and the existence of Fox’s ledger did not establish a running account. The parties operated largely independent ledgers. The contractual arrangements required invoicing, payment, deductions and settlement by reference to individual supplies. Those provisions were inconsistent with the alleged running-account arrangement. W H Smith’s pleading did not prevent that conclusion, particularly as Fox had suffered no procedural prejudice.
3. W H Smith bore the legal burden, and initially the evidential burden, of proving that Fox owed the claimed sum. Once the parties accepted the validity and value of the credits, however, the issue became whether W H Smith owed debts to Fox against which those credits had been properly offset. Those debts were unagreed, so Fox bore the evidential burden of proving them and the alleged offset.
4. The trial judge had erred to the extent that he misunderstood the significance of the £1,228,000 ledger balance. That error was immaterial. The judge correctly identified the central issue, and the ledger’s reliability was undermined by reconciliation errors, an unreconciled inherited balance, successive concessions and Fox’s inability to match the credits against receivables. Fox therefore failed to prove that the credits had been exhausted.

• Court of Appeal (Civil Division): On 26 November 2015 the court dismissed Fox’s appeal.
• High Court, Queen’s Bench Division, Bristol District Registry: On 20 November 2014 His Honour Judge Havelock-Allan QC gave judgment for W H Smith in the sum of £1,215,000.