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

The central legal question was whether the parties' many transactions were recorded in a "running account" so that only the ultimate balance was recoverable, and how the burden of proof should be allocated when ledger entries on each side conflicted. The Court of Appeal upheld the judge's finding that the parties did not operate a true running account because the contractual terms and the parties' practices provided for individual invoicing, returns and short payment periods rather than a single consolidated account. The judge was also right to recognise that, although the legal burden of proof lay on W H Smith as claimant, the admitted existence of Fox credit notes of the value claimed shifted the immediate evidential burden onto Fox to prove that those credits had been exhausted or properly off-set. Fox failed to discharge that evidential burden because it could not reliably match credits to underlying receivables, and its apparent general ledger figures were undermined by prior concessions, mismatching under earlier book-keeping arrangements and examples where the AR Ledger proved inaccurate.

Background and parties:

• W H Smith (claimant/respondent) and Twentieth Century Fox Home Entertainment (defendant/appellant) traded from 1999 to 2006 under written supplier arrangements (the VBA and a successor agreement). Fox supplied films on sale-or-return terms and both sides maintained distinct ledgers: W H Smith's Purchase Ledger and Fox's Accounts Receivable (AR) Ledger.

Nature of the claim and relief sought:

• W H Smith issued proceedings seeking payment of sums it said were due (originally claiming about £1,276,000). At first instance His Honour Judge Havelock-Allan QC gave judgment for W H Smith in the sum of £1,215,000, leaving an unresolved shortfall of about £61,000.

Procedural posture:

• The matter came on appeal to the Court of Appeal. The appeal challenged the trial judge's conclusions on (i) whether the parties' dealings were recorded in a running account and (ii) the judge's approach to the allocation of the burden of proof.

Issues framed by the court:

1. Whether the AR Ledger recorded a "running account" so that only the ultimate balance could be recovered and the claimant bore the burden of proving the balance due.
2. If not, how the legal and evidential burdens of proof were to be allocated given that Fox accepted the existence of credit notes corresponding to the claimant's asserted credits.
3. Whether Fox had discharged any evidential burden by demonstrating that the credit notes had been properly off-set against receivables.

Reasoning and key findings:

• The court agreed with the judge that the terms of the VBA and W H Smith's conditions of purchase, together with the parties' practices, were inconsistent with an implied agreement to run a true running account. The documentation envisaged invoicing after delivery, specified times for payment, rights to set off and short deadlines for settlement of debit notes, indicating individual obligations rather than a single consolidated account.
• The judge correctly treated the legal burden of proof as on W H Smith but accepted that the admitted existence of identified Fox credit notes created an evidential shift: Fox had to demonstrate that those credits had been exhausted or properly off-set. This was because the credits were admitted in value and validity, and the dispute concerned whether W H Smith had already received their benefit.
• Fox was unable to discharge that evidential burden. Its AR Ledger could not be satisfactorily reconciled to identify receivables matched with the credits, earlier book-keeping outsourcing produced mismatching and a residual unreliable figure, and Fox had made concessions which undermined confidence in its ledger figures. On that basis the court upheld the judgment for W H Smith (subject to the £61,000 adjustment).

Wider context: The court commented on the established authorities about what characterises a running account and applied them to the contractual terms and factual matrix; it emphasised that the label "running account" is not decisive and that the parties' intention and accounting practice determine whether transactions are to be treated as a single account.

Appeal dismissed. The Court of Appeal agreed with the trial judge that the parties had not operated a true running account given the contractual terms and practices, that the legal burden of proof lay on W H Smith but the admitted existence of Fox credit notes shifted the evidential burden to Fox to prove those credits had been exhausted, and that Fox failed to discharge that evidential burden because it could not reliably match credits to receivables or otherwise demonstrate appropriate off-set.

Appeal from the Queen's Bench Division, Bristol District Registry (His Honour Judge Havelock-Allan QC, Case No. 9BS40280). Judgment of the High Court below was dated 20 November 2014; this Court delivered judgment on 26 November 2015, neutral citation [2015] EWCA Civ 1188.