OUTER HOUSE, COURT OF SESSION   [2008] CSOH 51
CA53/05	OPINION OF LORD DRUMMOND YOUNG   in the cause   MACKAYS STORES LTD   Pursuers;   against   TOPWARD LTD   Defenders:     ­­­­­­­­­­­­­­­­­________________

 

 

Pursuers: Connal, Q.C., Solicitor, Morton, Solicitor; McGrigors

Defenders: Currie, Q.C., Fairley; Semple Fraser LLP

 

28 March 2008

 

[1] The pursuers have raised the present action against the defenders for payment of the sum of £270,210.07. The basis for the claim is that that sum was paid by the pursuers to the defenders in error, and its repayment is sought on the ground of the condictio indebiti.

[2] The action arises out of transactions between the parties for the supply of goods by the defenders to the pursuers. Prior to 1999, when the pursuers paid the defenders for goods they deducted a discount of 10% from the price; that was provided for in the pursuers' Terms and Conditions of Supply, which governed the parties' dealings. In 1999, however, the parties entered into a special arrangement relating to goods sourced from Turkey; for those goods the defenders were paid the cost of the goods plus a mark up of 10%, and no discount was deductible. It was rapidly discovered that these arrangements were unsatisfactory for the defenders because the volume of orders placed was insufficient to give them an adequate return. Consequently the parties moved away from the arrangement, and in 2000 it came to an end. Supplies of goods continued, and the pursuers paid the price of those goods in full, without any deductions. In 2004 the pursuers noticed that they had not been discounting the sums paid by them to the defenders. They claimed that this was the result of an error: following the end of the Turkish arrangements the discount provisions contained in their Terms and Conditions of Supply once again applied to the parties' dealings, and consequently they had failed to make deductions to which they were entitled. The pursuers claimed payment of the amount of discount that, they alleged, ought to have been deducted from the sums paid during the period from 2002 to 2004. In due course they raised the present action for repetition of that amount.

[3] The action was appointed to a proof before answer. At the proof evidence was taken from witnesses who represented both parties (although all the witnesses were in fact led by the pursuers); the pursuers were represented by Mr John Heaviside, their product sourcing director at the relevant time, Mr Paul Vann, their chief executive, Miss Susan Swannie, who had been their brand director, and Mr James Bell, their financial controller; and the defenders were represented by Mr Meir Uzan, their managing director and principal shareholder. I found all of the witnesses to be generally credible. I found Mr Vann and Miss Swannie to be reliable, although their recollection was not clear about certain matters. Mr Bell was, I thought, a good witness and reliable on the matters about which he spoke. Mr Uzan's evidence was lengthy and somewhat repetitive, and at times perhaps expressed more strongly than was necessary. Nevertheless, I consider that his account of events was straightforward and consistent. I have greater reservations about Mr Heaviside's evidence; my impression was that his evidence was based on assumptions about events rather than a recollection of what actually happened. He also showed reluctance to answer certain questions put in cross-examination. Nevertheless, I do not reject his evidence outright; I have merely treated it with some care, in particular in relation to the events that occurred when the Turkish arrangements came to an end.

[4] I intend to narrate the events that gave rise to the claim, as established by the evidence. Thereafter I propose to consider the three critical issues that arose between the parties. These were: first, whether at the time when the Turkish arrangements came to an end there was any express agreement that the parties would revert to deduction of a 10% discount from the price of goods; secondly, whether the pursuers' claim satisfies the requirements of the condictio indebiti, in particular the requirement that the sum whose repetition is sought should not have been due; and thirdly, whether equitable considerations require that the pursuers should be refused repetition.

 

Narrative of events

[5] The pursuers are retailers of clothing, which they sell through approximately 270 stores. The defenders, who trade under the name Kim Fashions, are importers and wholesalers of clothing. From the late 1980s onwards the defenders supplied the pursuers with ladieswear. The terms of the contracts between the parties were contained in a document issued by the pursuers known as their Terms and Conditions of Supply. Revised versions of this document were issued from time to time. A revision appears to have been issued to take effect from 1 January 1999 (no 6/88 of process), but no copy of any revision bearing that date was lodged in process. It was ultimately agreed, however, that the version of the pursuers' Terms and Conditions of Supply that was applicable in 1999 was a revision produced in October 1998 (no 6/87 of process), and the parties' legal submissions proceeded on the basis of that document.

[6] In the clothing industry it is common to find that the payment terms provide for discounts on the prices that are quoted by the seller for the supply of goods. The pursuers' Terms and Conditions of Supply made provision for such discounts. Initially they specified a 5% discount for prompt payment, that being payment within seven days after the receipt of the goods in the pursuers' warehouse in Paisley. In about 1990 the pursuers altered their trading terms, increasing the discount to 10%. That total discount was divided into two components, a prompt payment discount of 2.5% and a distribution discount of 7.5%. The amounts payable by the pursuers for goods supplied by the defenders were adjusted in accordance with those discount provisions. The amount of the discount was specified on the order forms used for each order of goods (of which no 6/101 of process is an example), and the fact that such discount was deducted was not in dispute between the parties.

[7] In about June 1999 the parties entered into an agreement in relation to the supply of goods manufactured in Turkey. The principal terms of the agreement are set out in a letter dated 30 June 1999 from Mr Roddy Murray, the pursuers' then finance director, to Mr Uzan (no 6/89 of process). The arrangement was that, when goods were ordered by the pursuers from the defenders, the defenders supplied costings for those goods based on the cost and utilization of fabric and the cost of manufacture. The defenders received a profit margin of 10% of those costs, and a fee of 56 US cents per garment for quality control inspection. Payment was to be made nett of any settlement or distribution discount 14 days after goods were received and recorded in the pursuers' warehouse. Costings and payment were to be in US dollars. There was a dispute in the evidence as to whether these arrangements applied to all goods sourced from Turkey or only to goods sourced from one particular manufacturer in Turkey; Mr Uzan's evidence was that they applied to all such goods, whereas Mr Heaviside stated that they were confined to one manufacturer. In the event I do not think that this point is critical, but it is notable that Mr Murray's letter of 30 June 1999 refers to "the general terms under which... we can conduct future business between our companies for goods manufactured in Turkey". That wording supports Mr Uzan's evidence; if the intention had been to confine the arrangements to a single manufacturer that would in my view have been stated in a letter of this nature. Moreover, Miss Swannie referred to the special arrangement regarding Turkey, not in relation to one manufacturer. That too supports Mr Uzan's evidence. I accordingly conclude that the arrangements applied to all goods manufactured in Turkey. The defenders supplied the pursuers with goods sourced in other countries, but the special arrangements did not apply to those goods.

[8] The parties' agreement was varied to some extent in the course of its operation; these variations were not in writing. In particular, certain prices were switched from US dollars to Sterling, and the transport arrangements were varied. Originally goods were shipped FOB Bursa, a town in western Turkey, with the result that the pursuers were responsible for transport. This was varied, however, in such a way that the pursuers became responsible for transport to the United Kingdom. Mr Uzan was not happy with these changes, which may have contributed to his eventual discontent with the arrangements.

[9] Miss Swannie, who was the pursuers' brand director, was in charge of the buyers responsible for ordering goods from the defenders. She gave evidence about the practical operation of the arrangements. The defenders provided the pursuers' buyers with costings for the goods, and the buyers would look at these and suggest how the cost could be lowered. When the costings were at a satisfactory level an order was placed, and the defenders received a profit margin of 10% of the cost of the goods. Fairly soon, however, the system of paying the defenders their costs plus 10% came to an end. Miss Swannie stated that she did not think that the new system worked because the parties would have to do a lot of business if the defenders were to make money. Unless the right products were available, however, her buyers could not place orders with the defenders. Miss Swannie stated that she thought that the new system stopped working "quickly". Her teams stopped asking for open costing sheets, and the system "gradually ground to a halt". She did not recall that the pursuers had ever said "stop now"; all that happened was that the buying teams stopped working on the basis of open costings. Business continued with the defenders, but in the ordinary way. The pursuers would indicate a product that they wanted, and a price would be negotiated. Miss Swannie did not state when the special system ended. The documentary evidence, however, suggests that it lasted from approximately October 1999 to April 2000. Invoices were produced that showed a mark-up of 10% and prices in US dollars (nos 7/17/93-7/17/106 of process); these obviously related to the special Turkish arrangements. The first of these documents was dated 1 November 1999 and the last 30 April 2000. No document was produced to suggest that the arrangements continued after about April 2000.

[10] Mr Uzan's evidence was that the system of charging costings plus 10% came to an end following a meeting in the spring of 2000; that is consistent with the documentation. He stated, however, that the new system would take time to work its way out of the arrangements that he had in place with his suppliers in Turkey. Mr Uzan explained that he had lost quite a lot of money through the new arrangements, as the pursuers' turnover had been less than expected following the introduction of the new system. At the meeting in the spring of 2000 the pursuers had not been able to tell the defenders the amount of business that would be placed in future; that was the reason that the system of charging costings plus 10% came to an end. Mr Heaviside also stated that he thought that the arrangements came to an end at approximately the time of a meeting held in the spring of 2000. In the light of the foregoing evidence I conclude that the system of charging costings plus 10%, on an "open book" basis, came to an end in the spring of 2000; it is unnecessary to be more precise. The parties are sharply in dispute as to what precisely was agreed when the new system of charging terminated, and I consider this matter separately at paragraph [15] below.

[11] The way in which the pursuers made payment to the defenders was explained by Mr James Bell, their financial controller. An account was maintained by the pursuers in respect of each of their suppliers, and each account was identified by a number. That account number brought the appropriate payment terms into operation within the pursuers' computer system. That computer system could only cope with one set of payment arrangements for each account, however; consequently, if different arrangements applied to certain goods a separate account had to be opened for those goods, identified by a distinct number. Two accounts had been opened for the defenders. The first of these, which had existed prior to 1999, applied to goods supplied under the pursuers' ordinary terms and conditions, where discounts totalling 10% were deductible. That account bore the number IT0046. When the Turkish arrangements came into operation, a second account was opened, bearing the number IT0077; no discount was deductible in respect of goods attributed to that account. Computer listings for each of the accounts were produced (nos 6/117 and 6/118 of process). Mr Bell gave evidence that once the Turkish arrangements were put in place he and the accounts department were aware of the fact because of the changes to the standard method of payment. That was why the account bearing the number IT0077 had been opened. When the buyers placed an order they used the same account numbers as the accounts department (illustrated by documentary orders such as that at page 2 of no 7/15/7 of process). On making an order, the buyers attributed it to one or other of the defenders' accounts, and thereafter the processing of the order through the pursuers' computer system was automatic.

[12] Mr Bell gave evidence that in 2004 the pursuers' discount rate had been increased to 11%, and that had been communicated to their suppliers. An issue had arisen regarding the defenders' account, and Mr Bell had extracted a list showing business done in the previous 18 months; that list had been supplied to Mr Heaviside. Mr Heaviside had stated that the account IT0077 should not have been used for some years, as its purpose had been abandoned. Mr Bell had carried out research into the matter, and had discovered that discount had not been taken by the pursuers in respect of goods supplied by the defenders. The accounts department had processed the invoices using the account IT0077, and because that number was used the computer system would not have deducted discount. Mr Heaviside gave evidence that, following the proposal to increase discount to 11% to fund a marketing campaign, he was told by the accounts department that the defenders had been a nett supplier for a number of years; no discount had been deducted.

[13] Mr Heaviside then, on 2 December 2004, wrote to Mr Uzan in the following terms (no 6/90 of process):

"It has come to my notice that, for a period of time we have been settling your invoices on a nett 7 day basis instead of the previously agreed terms. This error was originally made by our accounts department in September 2001 and prior to that we had deducted 10% discount for payment in 14 days. It would appear that your accounts department from this point on marked your invoices 'nett 7 day payment'.

 

I am sure you may remember that we set up two accounts for you in 1998, one was indeed a 'nett 7 day' account and this was used for a short period of time when we worked with you in Turkey on a '10% mark up' basis with Akayteks. Further to your letter concerning the volume of business being less than you had anticipated we reverted to our standard trading terms of 10% discount, paid in your case in 14 days. Up to August 2001 we traded on this basis and, as stated above, in September an accounting error resulted in the invoices being posted to the incorrect account".

The letter went on to refer to a summary of payments made since 21 February 2000 and stated that the discount incorrectly taken was in excess of £250,000. Mr Heaviside asked for Mr Uzan's view on how to resolve the matter. A meeting appears to have taken place on 7 December, and thereafter Mr Uzan sent a letter dated 15 December 2004 (no 6/91 of process), in the following terms:

"I would like to strongly reiterate that I am firmly of the belief that the trading terms agreed between our businesses are nett 7 days. I also understand that you believe that your accounts department have erred, however I would like to point out that on all our invoices to yourselves we clearly indicated trading terms of 7 days nett".

[14] Matters were not resolved, and the present action was raised. The sum sued for, £270,210.07, represents the total amount of discount that the pursuers claim to be due for the period from August 2001 to January 2005. The pursuers aver that all invoices rendered by the defenders during that period were posted in error to the account IT0077, and no discounts were deducted. As a result, it is averred, the pursuers overpaid the defenders. The pursuers now seek repetition of the sum concluded for, on the basis of the condictio indebiti.

 

Whether an agreement was concluded following the end of the Turkish arrangements

[15] The most important conflict in evidence related to the manner in which the Turkish arrangements came to an end. Mr Heaviside gave evidence that there had been an express agreement that the parties should revert to the pursuers' standard terms and conditions for all transactions, including those that had been subject to the special arrangements. He stated that a meeting had taken place attended by himself, Mr Uzan, Mr Vann and Miss Swannie. Mr Uzan said that the new arrangement was not profitable to him, and that he would revert to the ordinary way of working. Mr Heaviside had said that that was acceptable to the pursuers, and it was agreed that the parties would revert to the pursuers' standard arrangements, with payments processed through the account IT0046. In cross-examination Mr Heaviside was asked whether he had merely made an assumption that parties would revert to the previous position. He replied that he would say that there was an agreement that they would revert to how they were working previously; the Turkish agreement was at an end, so the parties went back to the previous way of working. He stated that he could not say that either side had used the expression "10% discount". He denied that he had merely made an assumption. I noted against this part of his evidence that his replies were rather vague, and he failed to give an answer the first time that the initial question about an assumption was put. Nevertheless, I formed the impression that he was honest in his belief that something had been said about going back to the previous method of working.

[16] Mr Uzan's evidence was that during 2000 he had had a meeting with representatives of the pursuers. After that meeting the "open book" system had stopped. Mr Uzan had indicated that he was losing money under that system because the turnover was inadequate, but the pursuers had been unable to tell him what amount of business would be placed in future. Mr Uzan had considered that the only person who could put any new arrangements in place was Mr Len McGeoch, the brother of the pursuers' managing director, as Mr McGeoch had been responsible for negotiating the cost plus 10% arrangements. Mr Uzan had stated at the meeting that, because he was losing money, he would stop providing costings and confining his profit margin to 10%; instead he would quote prices for goods manufactured in Turkey in the ordinary way, and would charge nett prices. When asked whether there was an agreement at the meeting to go back to the parties' original trading terms, he replied "No; absolutely not". Mr Uzan further stated in evidence that if the pursuers had taken discount he would have queried it. Moreover, if it had been indicated that the pursuers were to take discount, he would have built that into his calculation of prices. This point was developed in cross-examination; Mr Uzan stated that, if Mr Heaviside had stated during 2000 that discount was to be taken, the prices quoted by the defenders would have been built up to allow for the discount.

[17] My conclusion is that at the meeting held in the spring of 2000 there was no agreement that the parties should revert to their original terms of payment in relation to transactions that would have been covered by the special Turkish arrangements. I reach that conclusion for a number of reasons. First, in cross-examination Mr Heaviside accepted that, if an agreement had been reached to go back to a 10% discount, other individuals within the pursuers' organisation would have to know. Initially he suggested that if the right number were used the 10% discount should be deducted automatically. He then accepted, however, that the accounts department would have to be able to check the sums payable to the defenders, and that it was important that they should know that nothing was to be posted to the account IT0077. Eventually he accepted, slightly grudgingly, that if there had been a change in payment arrangements he would have alerted the pursuers' accounts department. He further accepted that there was no evidence of any documentary instruction. Mr Heaviside agreed that he was fastidious in his business dealings. In my opinion it is clear that, if an agreement had been reached at the meeting in the spring of 2000, Mr Heaviside would have informed others within the pursuers' organisation; the need for doing so was obvious. That applied to the accounts department, in order that they could check the payments due to the defenders. It would also apply to Miss Swannie and her team of buyers, who required to know the correct code in order that it could be put on the purchase orders generated by them. There was no evidence, however, that any instruction had been given either to the accounts department or to the buyers. If such an instruction had been given, it is unlikely in my view that the IT0077 code would have been placed on further orders; even if the buyers had made a mistake and used that code, their error should have been picked up by the accounts department, who would also have been informed about the change in code. I accordingly conclude that no instruction was given. That of itself strongly suggests that no agreement was reached at the meeting.

[18] Secondly, when Mr Heaviside discovered that the pursuers were not deducting discount, he sent the letter of 2 December 2004 to Mr Uzan (no 6/90 of process, quoted at paragraph [13] above). If there had been an express agreement that the parties revert to the pre-2000 arrangements, it would clearly be expected that the agreement would have been mentioned in the letter. It was not mentioned, however. Instead, in the second paragraph, Mr Heaviside stated that "we reverted to our standard trading terms of 10% discount". That must, I think, cast doubt on the evidence that there had been an express agreement. Mr Heaviside was asked about this matter in cross-examination, and eventually conceded that it would possibly have been "natural" to refer to the agreement that he maintained had been concluded in the spring of 2000. Thirdly, the only evidence to support the existence of an agreement came from Mr Heaviside. He was not supported by the other witnesses for the pursuers. Mr Vann, who was present at the meeting in the spring of 2000, was asked at the end of his evidence whether he remembered whether a new arrangement was entered into at that meeting. He replied that he was "99% certain" that there was no new arrangement. Mr Heaviside stated that Miss Swannie was also present at the meeting, but she could not remember any such meeting. It was her evidence, however, that any change in the trading terms would be highly relevant to her buying team, in that they would require to insert the correct code (IT0046 or IT0077) in the purchase orders that they were responsible for generating.

[19] Fourthly, if there had been an express agreement, I do not think it likely that the pursuers would have failed to notice that they had not claimed discount for a period of more than four years. Elementary checks of the sums that were being paid to the defenders would have revealed the absence of any discount. Moreover, among the productions were documents (no 6/79 of process) relating to a transaction in July 2004 where discount had been deducted by the pursuers but was challenged by the defenders; the pursuers thereupon paid the defenders the amount of discount, £728.28, that they had taken. The existence of that transaction is not decisive, but it indicates a clear belief on the part of the pursuers' accounts department that there was no entitlement to discount on the transaction in question. That supports the view that there was no express agreement.

[20] Mr Uzan's evidence was not that there had been any agreement, but that he had indicated at the meeting that he would charge nett prices until such time as he received a communication from Mr Len McGeoch. If that happened, no change in the pursuers' code would be necessary, and there would be no reason for Mr Heaviside to tell the pursuers' buyers or accounts department that the IT0077 code was not to be used. Thus the evidence that is available from the documentary productions and from Mr Vann and Miss Swannie tends to support Mr Uzan's version of events rather than Mr Heaviside's.

[21] I accordingly conclude that Mr Uzan's account of the meeting held in the spring of 2000 is substantially correct. No express agreement was reached that the parties would revert to the system of discounts contained in the pursuers' standard terms and conditions. Mr Uzan complained about the level of turnover, and indicated that the defenders would stop providing open costings and restricting their profit margin to 10%. He stated that, until Mr McGeoch came back to him, he would charge nett prices, which would be payable without discount. On that basis, the pursuers' standard terms and conditions would not apply to any goods sourced from Turkey in the period from 2001 to 2004. That of itself is sufficient to defeat the pursuers' claim.

 

The requirements of the condictio indebiti

[22] Even if the pursuers' standard terms and conditions did apply to such sales, however, I am of opinion that the requirements of the condictio indebiti are not satisfied. The parties were in agreement that the relevant legal principles are stated in two well known cases, Royal Bank of Scotland PLC v Watt, 1991 SC 48, and Morgan Guaranty Trust Company of New York v Lothian Regional Council, 1995 SC 151. In the former case the Lord Justice-Clerk (Ross) stated (at 57):

"The present case is one where money was paid in error, and in such a situation the equitable remedy of repetition is available. The emphasis is not upon the extent to which the party receiving the payment has been enriched, but upon whether that person has any good and equitable reason to refrain from repaying the money to the person who paid it under a mistake. Is it inequitable that he should return the money paid to him in error?"

In the latter case, the Lord President (Hope) stated (at 165-166):

"In my opinion the essentials of the condictio indebiti are that the sum which the pursuer paid was not due and that he made the payment in error. These matters must be the subject of averment by the pursuer to show that prima facie he is entitled to the remedy. It is the fact that the sum was not due that provides the ground for repetition on the principle of unjustified enrichment. An averment that the payment was made in error in needed in order to show that this is not a case of donation. It is appropriate to place the onus of demonstrating this point on the pursuer, as he is the party who can best explain why the payment was made although it was not due. There remain the questions whether an order for repetition should be granted, which must depend on the circumstances of each case and on considerations of equity, and whether it is for the pursuer or for the defender to make the averments which are required on this point.

 

In my opinion... it is not part of the law of Scotland that the error must be shown to be excusable. This is not to say that the nature of the error and the question whether it could have been avoided may not play a part in a decision as to where the equities lie if the point is raised in answer to the pursuer's claim. I consider, however, that, once the pursuer has averred the necessary ingredients to show that prima facie he is entitled to the remedy, it is for the defender to raise the issues which may lead to a decision that the remedy should be refused on grounds of equity".

The important point that emerges from the foregoing statement of the law is that the pursuer must establish that the sum paid was not due, because it is the payment of a sum that is not due that renders the defender's enrichment unjust. In the present case, accordingly, it is necessary to consider whether the sums paid by the pursuers to the defenders were due.

[23] For present purposes it must be assumed that the pursuers' standard terms and conditions of supply were applicable to the transactions between the parties. The evidence as to what happened when an order was placed (taken from Mr Bell, Miss Swannie and to some extent Mr Heaviside) was reasonably clear and consistent, and was to the following effect. First, a purchase order was generated on a computer by the pursuers' buyer. An example is found at no. 7/15/2 of process on the second page of the production; this indicates the type of garment involved, the name of the supplier, the cost per garment, the quantity of garments, and the total cost. The document also indicates the relevant supplier account, in this case IT0077. The purchase order was followed by an invoice, such as that found on the first page of the same production. This was issued by the defenders to the pursuers. It indicated the pursuers' customer, the type of garment involved, the quantity, the price per garment, and the total price. At the foot the terms are stated as being "7 Days Nett 28323.96", that being the total price of the goods referred to in the invoice. The cost stated in the purchase order and the price stated in the invoice are identical. A substantial number of purchase orders and invoices were produced, and all were similar in form.

[24] Section 6 of the pursuers' terms and conditions of supply (no 6/87 of process) is headed "Conditions of supply". On the third page of that section (page 12 of the production) there is a subheading "Prices And Payments". The first paragraph of this provision is as follows:

"The prices payable for the Goods are as quoted on the Order. No increase in the said price shall be payable by the Company, unless authorised in writing by the Mackays buyer".

The expression "the Order" is defined at the beginning of section 6:

"'The Order' means the order printed on an official numbered purchase order form of 'Mackays Stores Limited' or on a computer generated form on official Company letterhead".

It is thus clear that the 'Order' referred to in dealing with prices and payments is the order found on the pursuers' purchase order form. Consequently in terms of Section 6 the pursuers' obligation was to pay the price quoted in the purchase order form. In the present case that is precisely what they did.

[25] In the pursuers' terms and conditions discount is mentioned on the second page of Schedule Two (page 39 of the production). That schedule deals with the supplier profile of the particular supplier; the applicable discounts are said to be a settlement discount of 2.5% and a distribution discount of 7.5%. The version of Schedule Two that was applicable to the defenders is found at no. 6/99 of process, and the same two discounts are found on the second page of that schedule. The argument for the pursuers was that those two discounts were deductible in respect of all goods ordered from the defenders, but the pursuers' accounts department had failed to deduct them because the buyers had used the wrong supplier code for purchases from the defenders. The problem with that argument is that, in the event of any conflict between Section 6 and any other part of the pursuers' terms and conditions of supply, the terms of Section 6 are to prevail. This is clear from the last part of Section 5, headed "Purchase Orders" (found on page 9 of the production). Under the heading "Purchase Orders" this provides as follows:

"Only orders which are on Mackays Stores Limited printed purchase order forms, or computer printed orders on Mackays Stores Limited letterhead will be recognized as official orders".

The final paragraph of this part of Section 5 is in the following terms:

"The general terms and conditions of purchase are set out in the following section, but they are to be read in conjunction with the rest of this document and this entire document forms the official 'Terms and Conditions of Supply' between Mackays Stores Limited and its Suppliers. In the event of any inconsistency between Section 6, and the remainder of the Terms and Conditions of Supply, the terms of Section 6 will apply".

The result is that the price payable by the defenders is governed by Section 6, and in the event of any conflict with the discount provisions in Schedule Two it is the provisions of Section 6 that prevail. Thus, in accordance with the first of the provisions from Section 6 that are set out in paragraph [24] above, the price that is payable for goods is the price quoted in the purchase order. In the present case the prices quoted in the purchase orders do not appear to have allowed for discount, but they are still the prices that were applicable to the transactions between the parties.

[26] The first paragraph of the part of Section 6 that deals with Prices and Payments makes it clear that the prices payable for goods are as quoted on the purchase orders. That result was in my opinion confirmed by the evidence given by the witnesses for the pursuers. In the legal submissions for the parties there was a dispute as to the significance of the evidence, and in particular whether any of the witnesses stated that discount was deducted from the figure stated in the purchase order. It appeared to me that the evidence was not fully focused on this question. Nevertheless, the provisions of Section 6 clearly assume that the price payable will be as quoted on the purchase order, and in my opinion the evidence was entirely consistent with that position, and inconsistent with any suggestion that discount was deducted from the price quoted on the purchase order. Thus Miss Swannie gave evidence (under reference to page 2 of no 7/15 of process) that the cost stated in the purchase order was the sum that the pursuers were due to pay to their supplier. She stated that when an order was placed, governed by the pursuers' standard terms and conditions, a purchase order would be generated by the pursuers and the cost of the garment inserted; that would be the amount that the pursuers paid their supplier. Mr Bell, in explaining the pursuers' financial systems, stated that a supplier's account number would be used by the buying department to place an order and also by the accounts department to process invoices. Once the number was used, discount would be taken automatically. Although Mr Bell was not asked about the matter expressly, it seems clear from his evidence that, because the supplier's account number was used on the purchase order, discount would be taken automatically in that document. Finally, in re-examination Mr Heaviside gave evidence to similar effect. He stated that, when a supplier's account number is keyed into the pursuers' computer system, discount is taken automatically when the value of the order is calculated. That is consistent with the proposition that the figure stated in a purchase order issued by the pursuers included allowance for any discount that was due. On the basis of the foregoing evidence it is clear that what went wrong in the present case, according to the pursuers, was that the account number IT0077 was used to process orders placed with the defenders. As soon as the buyer keyed that number into the computer system, the price in the purchase order was treated as a nett price, without any deduction of discount, and the goods were ordered on that basis. Nevertheless, that is the price that was quoted to the defenders, and according to Section 6 of the pursuers' terms and conditions of supply it is the price applicable to the transaction between the parties. That conclusion follows from the pursuers' standard terms and conditions; it is not dependent on the oral evidence, but in my view it is entirely consistent with that evidence and indeed is confirmed by parts of that evidence.

[27] It is not in dispute that the pursuers paid the defenders the sums quoted on the purchase orders. Consequently the pursuers did not pay any sums that were not due. The result is accordingly that one of the essential requirements of the condictio indebiti is not satisfied: it is the payment of a sum that is not due that makes the enrichment of the defender unjust. If the defender has merely received sums that were due, he has received his contractual entitlement, and there is nothing unjust about that. On this basis the pursuers' claim must fail, and the defenders are entitled to decree of absolvitor.

 

Equity

[28] The condictio indebiti is an equitable remedy; that is clear from the authorities quoted at paragraph [22] above. Consequently the remedy will be refused if it produces a result that is unfair. In the circumstances of their present case I am of opinion that, even if the requirements of the condictio indebiti were satisfied, the result would be unfair to the defenders.

[29] It is not in dispute that the general practice in the clothing industry is that retailers deduct discount from sums payable to their suppliers; the amount of discount depends upon the particular retailer's terms of trading. That practice was spoken to by Mr Heaviside, Mr Uzan and Miss Swannie; evidence was given that the pursuers deducted 10% and subsequently 11% discount, that Arcadia, another major retail group, imposed 14 1/2% discount, and that Marks & Spencer imposed 15% discount. In view of that practice, when a supplier quotes a price the custom is to calculate what is needed to maintain its margin and to add to the cost of the goods an amount which, after discount, will maintain that margin. This is perhaps very obvious; if it is known that a customer will discount the price that is quoted by a supplier, the price quoted will be adjusted by the supplier to allow for the discount. Thus the process of discounting is in a sense an elaborate game which has no real effect on the price that is ultimately paid.

[30] What is important, however, is that the supplier should know what the discount is, in order that he can adjust his price accordingly. Mr Uzan gave evidence on this matter. In his evidence in chief he stated that, if a discount were taken, he would build that into his prices. This point was developed further in cross-examination, where Mr Uzan agreed that the number that he needed to know was the amount of the discount; once he knew that amount he added it on to arrive at his price. The discount was built on to the price in the knowledge that it would be taken off by the retailer. This point, I am bound to say, appears to me to be a matter of elementary common sense. Mr Uzan further stated in his evidence in chief that if the pursuers had come to him after three or four months he would have accepted that discount was payable and would have built it into his future prices. He thought, however, that it was unacceptable for the pursuers to attempt to take discount after a period of three of four years; that would be unfair, as it was a result of their own internal error.

[31] In the present case the pursuers failed to deduct any discount over a period of 4 1/2 years. Their claim is not based on a single error or small number of errors; it is based on a series of errors which, they allege, went on throughout that period. It is in my opinion obvious that if they had made it clear that they were claiming discount, Mr Uzan would have made allowance for it in the prices that he quoted. Because they appeared not to charge discount, however, he did not do so. Thus the pursuers' error deprived the defenders of the opportunity to adjust their prices to reflect the amount of discount. In view of Mr Uzan's evidence, and indeed as a matter of common sense, I consider it beyond doubt that the defenders would have adjusted their prices if they had been aware that discount was to be deducted. Consequently, if the pursuers were to recover the amount of the discount that they claim ought to have been deducted, they would obtain a windfall benefit in that the prices quoted by the defenders were lower than they would have been had the defenders known about the discount. At the same time the defenders would have to forego the sums that they would have built into their prices if the matter had been drawn to their attention. In that situation the equities of the claim appear to me to be very clear: if decree were granted the result would be wholly unfair to the defenders. I am accordingly of opinion that, even if the positive requirements of the condictio indebiti were satisfied, the equities would be against the defenders, and the claim should be refused.

[32] On the subject of the equities of the claim, I should mention one further aspect of the evidence. In the course of his cross-examination Mr Heaviside appeared to suggest that the prices quoted by the defenders after 2000 made allowance for discount; my note is that he stated "I maintain that the prices quoted included discount". He went on to suggest that, if Mr Uzan had been alerted, he might have allowed for a double discount. That suggestion did not appear to me to have any factual basis. Moreover, it could be considered as an allegation of sharp practice on Mr Uzan's part. If so, that is a serious matter, and it should have been put to Mr Uzan in the course of his evidence. It was not put to him, however, either in examination in chief or in re-examination (Mr Uzan was led as a witness for the pursuers). In the circumstances I do not accept that Mr Uzan had already allowed for discount in the prices that he quoted.

 

Conclusion

[33] For the foregoing reasons I am of opinion that the requirements of the condictio indebiti have not been established by the pursuers. I am further of opinion that, even if those requirements were made out, it would be inequitable to permit repetition in the circumstances of the present case. I will accordingly assoilzie the defenders from the conclusions of the summons.