Costcutter Supermarkets Group Limited v Ameet Kumar Vaish & Anor

In a judgment dated 14 October 2022 (‘the Judgment’), HHJ Sephton KC held that two identical limitation of liability clauses in two agreements precluded any recovery by the Appellant, Costcutter Supermarkets Group Limited (“Costcutter”), for goods delivered to two convenience stores, in Bramhall (operated by the First Respondent Mr Ameet Vaish (‘AV’)), and Offerton (operated by the Second Respondent Mr Pradeept Vaish (‘PV’)), that were part of the Costcutter franchise. Costcutter appeals, pursuant to permission granted by Mrs Justice Heather Williams on 9 March 2022.

The Judgment found, however, that PV was liable to Costcutter for the sum of £108,637.18 plus interest (£133,921.56 in total) in respect of goods delivered to the second of PV’s convenience stores, located in Tytherington. The relationship between PV and Costcutter in relation to this store was governed by a contract which did not contain the relevant limitation of liability clause. The Judge made an order for PV to pay this sum to Costcutter (‘the Order to Pay’), against which PV cross-appeals. Pursuant to an Order I made on 10 January 2024 the application for permission to cross-appeal and the substantive application to appeal were rolled up into the existing hearing on Costcutter’s appeal.

I thank both Mr Tannock, for the Appellant, and Mr Aslett, for the Respondents, for their admirably clear and efficient submissions.

I set out the background to this claim largely by reference to some of the facts as set out by HHJ Sephton KC at paragraphs 5 to 26 of his judgment, which are not the subject of controversy in this appeal.

Costcutter (through its predecessor in title) entered into a written trading agreement with PV on 15 July 1997 in respect of the convenience store located at Tytherington Shopping Centre, Macclesfield, Cheshire (the “1997 Agreement”). On 9 January 2009, Costcutter entered into a second trading agreement signed with PV in respect of the convenience store at 7-9 Turnstone Road, Offerton, Stockport SK2 5XT (the “2009 Agreement”). On or about 14 August 2012, Costcutter entered into a third trading agreement with AV in respect of the convenience store at 77-81 North Park Road, Bramhall, Stockport SK7 3LP (the “2012 Agreement”).

The business model Costcutter had at the time when the contracts, in this case, were made, was that it sourced most of its goods supplied to retailers from the National Independent Supermarkets Association (“NISA”). NISA was able to offer keen prices because it bought in bulk for a large number of independent retailers. At this time, Costcutter made its money by charging a very modest commission equivalent to 1% of actual costs on the supplies, together with a number of fees.

In around 2014, Costcutter changed its business model. Goods previously supplied by NISA were now supplied by P&H. Costcutter stopped taking commission, and although the 2009 and 2012 Agreements referred to the entitlement to a ‘Service Charge’, this was no longer made. Costcutter made its money instead by an arrangement with P&H. The relationship between the parties broke down because in the years after 2014, P&H was largely incapable of providing a reliable service. Whilst there were periods during which its performance was adequate, there were long periods during which the service levels were much lower than 95%, the level of service generally expected by retailers. In particular, a very significant problem was that P&H were not fulfilling orders for goods on which Costcutter was running promotions. For example, a three-week promotion would be advertised in advance but the store would not receive stock to sell the promotion until the third week. As such a customer, disappointed in his search for a particular item in the store, might choose to do all of his shopping elsewhere. Missing stock implied lost sales, not only of the missing item but also of other goods.

This level of service led to complaints from AV and, in particular, PV, and by May 2017, they decided that they would leave Costcutter, and, in future, would join the SPAR symbol group. On 14 June 2017, Costcutter learned that the defendants had cancelled their direct debit mandates. Costcutter responded, setting out the sums it said were due for goods which had been delivered to the stores but for which no payment had been received. This claim for payment formed the basis of Costcutter’s claim against the Respondents. The Respondent’s counterclaimed for its profits lost by reason of the poor service, although that counterclaim was rejected by HHJ Sephton KC, and no appeal is brought against the rejection of the counterclaim.

The Amended Particulars of Claim set out relevant terms of the three Agreements pursuant to which claims for payment were brought. I set these out in the following section. It is of note, however, that (perhaps unnecessarily), the pleader alleged an implied term as follows:

The Amended Particulars of Claim thereafter set out the plea that AV and PV had purchased but failed and refused to pay for goods under each of the Agreements. In respect of each store and related Agreement, the Amended Particulars of Claim then advanced a claim in debt and, in the alternative, damages.

The Defence and Counterclaim (‘DCC’) related the narrative underlying AV and PV’s dissatisfaction with Costcutter. In relation to the terms of the Agreement(s), the Respondents averred (in essence) that there was an implied term as to the existence of the 95% service level identified above (which it then contended had been breached, giving rise to the losses claimed by way of counterclaim).

In setting out the business model underlying the Agreements in general terms at paragraph 10 of the DCC, the Respondents pleaded:

In relation to both the 2009 Agreement and the 2012 Agreement, the Respondents pleaded, respectively (at paragraphs 23.5 and 27):

Similarly, in relation to the implied term, the Respondents pleaded (at paragraph 44):

A similar plea is made at paragraph 47.2, that ‘but for the counterclaim and/or set off below, [AV and PV] would be liable to pay such sums as could be established’.

In addition, as is relevant to the cross-appeal, AV and PV clearly put Costcutter to proof of its claims for payment. Paragraph 46 stated:

Paragraph 50 of the DCC referred to paragraph 19.2:

I note that Clause 19.2 was not therefore relied upon to defeat the claim for the debt, as opposed to the claim for breach of contract.

The relevant terms of the Agreements, which were in materially identical terms for the purposes of the issues in this appeal, are as follows:

Having outlined the facts underlying the dispute, the Judge turned to the evidence provided by Costcutter to support its claim for sums due under the Contract. At paragraph 22, the Judge said:

At paragraph 24, he rejected the oral evidence of AV and AP that at the conclusion of the relationship with Costcutter, they had to pay some of their suppliers for goods delivered under the Costcutter regime, on the basis that this was never referred to in contemporaneous correspondence and had not been supported by documentary evidence which ought to have existed.

At paragraphs 25, the Judge made reference to a spreadsheet (‘the Spreadsheet’), which he later relied upon and which lies at the heart of the cross appeal. He said:

In paragraphs 27 to 32, the Judge dealt with the claim. The Judge noted at [27] that the Respondents admit that some goods were delivered but put Costcutter to proof about what was delivered and what it was worth.

At paragraph 28, the Judge echoed various prior comments (listed at paragraph 3.3 of the Respondent’s Skeleton Argument for Permission to (Cross-) Appeal), and concluded in clear terms that the documentation provided by Costcutter was inadequate to enable the Court to reach a conclusion on what goods were delivered. It is clear that if no other evidence existed, Costcutter would have failed to prove their claim on the basis of the evidence they tendered.

However, at paragraph 29, the Judge returned to the spreadsheet referred to earlier in his judgment. He then said:

This finding of fact is the subject of the Respondents’ cross-appeal.

At paragraph 30, the Judge sets out clause 19.2. He briefly analyses the effect of the clause at paragraphs 31 and 32 as follows:

It is this construction of clause 19.2 which is the subject of Costcutter’s appeal.

The appeal turns on the proper construction of Clause 19.2.

Both Mr Tannock and Mr Aslett referred to various parts of the well-known Supreme Court decisions relating to the approach to the construction of contracts, and in particular Arnold v. Britton [2015] UKSC 36 [2015] AC 1619, Rainy Sky SA v. Kookmin Bank [2011] UKSC 50 [2011] 1 WLR 2900, and Wood v. Capita Insurance Services Limited [2017] UKSC 24.

The following is a short summary of the necessary approach:

Whilst Mr Tannock emphasised (5) above, and Mr Aslett emphasised (4), there was, unsurprisingly, no substantive disagreement about how the Court should construe a contract.

Clause 19.2 is a limitation of liability clause. Whilst neither side referred me specifically to those authorities which relate specifically to the construction of such clauses, I also remind myself of the recent guidance of the Supreme Court in Triple Point Technology, Inc v PTT Public Company Limited [2021] UKSC 29, in which Lord Leggatt explained:

At the heart of Mr Tannock’s principal submission is the distinction between a claim in debt and a claim in damages. This distinction is set out clearly in Chitty on Contracts 35^th Edn at 30-010:

The obligation to pay is a primary obligation. It is well established that the liability to pay damages is a secondary obligation. Mr Tannock referred the Court to the case of AB v CD [2015] 1 WLR 771 in which the distinction was considered in the context injunctive relief, and the relevance of an exclusion clause to the question of adequacy of damages as part of the American Cyanmid test. Underhill LJ said:

Whilst, of course, each clause must be construed according to its own terms, it is instructive to look at the clause being relied upon in AB v CD. It stated (emphasis added):

In AB v CD, it was not necessary for the Court to, and it did not, construe the clause in any detail. However, for the purposes of this judgment it is sufficient to note that broad exclusion clauses aimed at ‘any cause of action’ are not the same as an agreement to excuse performance of the primary obligation.

In the present case, the primary obligation to make payment was clear from clause 4.1, which set out the key primary obligations on both parties. Costcutter’s obligation was to purchase and pay for Goods that the Retailer ordered and arrange for them to be delivered. Costcutter would charge the Retailer and the Retailer had an express obligation to ‘pay the Service Charge and the Actual Cost to the Consultant of such Goods.’ An action for the price of the Goods arises upon non-payment, namely an action for the enforcement of the primary obligation in debt. It is unrelated to the separate cause of action arising out of the fact that the omission to pay was also a breach of contract. Indeed, Clause 13.8 expressly envisages the entitlement of Costcutter to maintain an action for the price of the Goods notwithstanding the fact that (pursuant to Clause 13.3) title will not have passed to the Retailer.

Against this background, it is clear that the Judge fell into error by failing to recognise the importance of this distinction when construing clause 19.2.

Mr Aslett did not dispute that a debt claim and a damages claim were different. He also did not dispute that Costcutter’s primary claim was properly characterised as a claim in debt. However, he said that both were ‘claims’ or ‘causes of action’ and both types of claims were excluded by the wording of Clause 19.2. In particular, he argued that the Judge was right to consider that the claim in debt itself was a ‘liability …in respect of [an] omission….arising out of any … breach of contract…or otherwise’. It was therefore caught by the clause. He did not demur from the fact that the consequence of this was that the Retailer could therefore accept delivery of the goods, refuse to pay, and its primary obligation to pay the Actual Cost was immediately replaced by a liability only to pay such sum as was calculated by reference to 19.2.

In my judgment, it is clear that the words within clause 19.2 are not directed at removing the primary obligation upon the Retailer to comply with its obligation to pay for goods received. The clause is directed expressly to acts or omissions arising out of any tortious act, breach of contract or statutory duty. The phrase, in the present context, ‘breach of contract’ is clear. The claim to enforce the primary obligation of payment is not a claim for breach of contract (although such a claim would sit alongside such a claim). The fact that damages for breach of contract are expressly limited does not prevent the action in debt in respect of the primary obligation. The words ‘or otherwise’ are not sufficiently clear to have the effect of excluding any claim relating to the enforcement of primary obligations, even if the purported exclusion of the liability to perform the primary obligation could ever exist meaningfully in an effective contract.

Mr Tannock also argued, that as a matter of language, Clause 19.2 was directed at limiting the consequences of a breach of contract, such as a loss of profit claim, by emphasising the phrase ‘arising out of’. I do not consider that this argument is correct. Clause 19.2 deals squarely with claims for direct losses caused by breaches of contract. Clause 19.3 deals with consequential losses.

I would add that my analysis above is not driven by the particularly stark factual position in this case where the Service Charge in the relevant years was zero. The effect of this, as indeed the conclusion of the Judge demonstrated, was that the limit of liability calculated by reference to clause 19.2 was zero. The conclusion I arrive at is driven by the clear distinction between the nature of an action in debt to enforce a primary obligation, which is not excluded by a clause which is plainly drafted to limit secondary obligations arising in damages. However, it might also be said that even if this were not the correct analysis, any construction which led to the conclusion that upon delivery of goods, the contract regime effectively permitted the recipient to avoid both primary liability to pay, and there was no liability for damages, is so extreme that the clearest of wording would be required to achieve such an improbable outcome. Clause 19 is not drafted so as to achieve such an end.

Finally, whilst it is sufficient to deal with this appeal simply on the basis of the error of law relating to the construction of clause 19.2, I note that the Judge’s conclusion appears in addition to contradict the Respondents’ admissions on the pleadings that, subject to their set-off and counterclaim (and subject to putting the Claimants to proof) they ‘would be liable to pay such sums as could be established’. The reference in the DCC to clause 19.2 seems on its face (and rightly so, for the reasons I have set out above) to be directed towards the (alternative) claim for breach of contract. It was not suggested that the clause was applicable to exclude or limit the claim in debt, and I consider that the Judge was wrong in law in concluding that the Clause had such an effect.

The Judge concluded that the Respondents’ spreadsheet set out the value of goods delivered for which, but for the effect of clause 19.2, the Respondents were liable to Costcutter. For the reasons set out above, the Judge should not have determined that sums due under the 2009 and 2012 contracts were limited by clause 19.2. Subject to the cross-appeal, the Judge, but for his error relating to clause 19.2, would have found PV liable to Costcutter under the 2009 contract for £33,616.81 plus interest and AV liable to Costcutter under the 2012 contract in the sum of £84,110.78.

Ground 1 avers that the Judge failed to consider the reality of the burden of proof. Ground 2 relies upon CPR Rule 16.5(4) in underlining what a Claimant must prove in a monetary claim. Ground 3 concerns the Judge’s treatment of the Spreadsheet as some form of admission or waiver of proof. Ground 4 related to the Judge’s overall weighing of the evidence, in respect of which the Judge fell into serious error.

In oral argument, Mr Aslett realistically accepted the cross-appeal was not based upon an error or errors of law, in that the Judge failed to recognise or direct himself properly that the burden of proof was and remained upon the Clamant to prove its claim. Instead, the thrust of the cross-appeal as advanced by Mr Aslett was that, having found that Costcutter had not proved its claim by reference to its own documents (essentially invoice summaries), the Judge was wrong to conclude as a matter of fact, having failed appropriately to weigh the evidence and in particular the limited proof offered by the Costcutter’s own documentation tendered during the trial, that Costcutter had discharged its burden of proving its claim by reference to the spreadsheet produced by the Defendant.

Technically, the Defendants’ application before me is an application for permission to appeal. I have however considered the substance of the Defendants’ appeal. Where the appeal is against the factual findings of the Court, there is a high threshold on the appellant. The law and relevant key cases were recently summarised in Deutsche Bank AG v Sebastian Holdings [2023] EWCA Civ 191:

The Spreadsheet was referred to in the witness evidence of both AV and PV. The purpose of the Spreadsheet was to prove the losses AV and PV claimed in their counterclaim against Costcutter. The Spreadsheet was a single page and is included as Annex A to this judgment. PV referred to it at paragraph 21 of his witness statement. AV’s second witness statement cross-referred to it at paragraph 24. At the beginning of his examination in chief, PV was taken specifically to the Spreadsheet and he confirmed that, to the best of his knowledge and belief, it was true.

The Spreadsheet contained the following information:

Unsurprisingly, PV was cross-examined about these entries, on the basis that they represented PV’s true analysis of the sum they accepted was owed to Costcutter, as against the sums claimed (and, of course, subject to the set-off and counterclaim). PV stated that he produced the spreadsheet towards the end of 2017, and that it was then updated with actual figures from accounts. PV denied that figures represented his analysis of what was actually owed, however, and contended instead that they were ‘figures I plucked out from emails, exchanges’ with a representative from Costcutter. PV was then cross-examined on a number of emails, and it was put to him again that the figures in the second column were indeed his analysis of the sum actually owed, which proposition he again denied.

The Judge clearly considered this exchange in paragraph 25 of the Judgment, set out in paragraph 22 above. It is plain that the trial Judge was best placed to consider the document and the reliability of the explanation given by PV. He was entitled to reject that explanation, and given the ordinary meaning of the words used in the Spreadsheet, it could not be said that the Judge’s conclusion that this spreadsheet represented what PV considered was ‘actually owed’ was in any way irrational or perverse. This is particularly so in light of his assessment that both PV and AV were astute businessmen who were aware of what stock they held in their stores.

Whilst the burden of proof was and remained upon Costcutter to prove its claim, itcould, in the ordinary way, rely upon all the evidence before the Court to do so. There is plainly no principle that, in considering whether at the end of trial, a party has discharged its burden of proof, the Court must restrict its consideration to just the documentation or other evidence tendered by the party bearing the burden. Indeed, Mr Aslett did not suggest any such principle.

CPR16.5(4) does not add to the analysis. It relates to what may be regarded as in issue given what might be left unaddressed in a pleading. It is simply not relevant to how a Judge is to weigh all the evidence at the end of a trial to determine whether a party has discharged the burden of proof upon it.

Neither does an analysis through the prism of ‘informal admission’ assist the Respondents. There was a debate between Mr Tannock and Mr Aslett as to whether section 4 of the CEA 1995, which relates to the admissibility of hearsay evidence, was engaged in relation to the Spreadsheet. It is not obvious why it would be – the Spreadsheet was a document prepared by a witness containing information that they had collated from their own documents and in respect of which they gave first hand evidence confirming the truth of the contents of the document. Moreover, it was not suggested to the Judge below that the provisions were relevant to the assessment of the evidence. However, even if the checklist of matters set out in section 4 of the CEA 1995 was relevant, it is far from obvious how any of the factors would have impacted the assessment of the Judge in this case. No particular consideration arising out of a particular sub-provision of section 4 was suggested by Mr Aslett.

Mr Aslett also suggested that this was a ‘quantum’ document, and could not be taken as evidence relevant to all the aspects of both liability and quantum required to be proven by Costcutter. This forms part of his submission that the Spreadsheet was regarded as a ‘waiver of proof’. However, this is unrealistic. There was no dispute that deliveries had been made entitling Costcutter to payment of the actual cost (subject to the set off and counterclaim). It was the extent of goods delivered and their cost which were the material elements in respect of which Costcutter was put to proof. The Respondents’ own analysis of ‘Actually owed’ (as the Judge was entitled to find the Spreadsheet contained), is plainly evidence, tested in cross-examination, the Judge was entitled to take into account in finding whether the Costcutter had proved what the amount was it was owed.

For these reasons, it would be wrong for this Court to interfere in the Judge’s factual finding about the value of the sums due by way of debt on account of goods delivered to the Respondents. The cross-appeal fails (and no permission is given in respect of it).

The appeal succeeds. The cross-appeal fails. Accordingly, in addition to PV’s liability under the 1997 Contract as found by the Judge, PV is liable to Costcutter under the 2009 contract for £33,616.81 plus interest; and AV is liable to Costcutter under the 2012 contract in the sum of £84,110.78 plus interest. I leave it to Counsel to draw up the appropriate Order having agreed the interest calculations.