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(1984)1984 July 30 [L. Loizou, HADJIANASTASSIOU AND MALACHTOS, JJ.] PHOTIOU BROS. CO. LTD., AND ANOTHER Appellantr- Plaintijfs. v. AUTOLIFTS AND ENGINEERING CO. LTD., Respondents-Defendants. (Civil Appeal No. 5199). Contract of agency—Agents acting as sole distributors of products of principals—Agents failing topayfor products supplied to them in accordance with the terms of contract of agency—They committed a breach of afundamental term of the contract entitlingprincipals to repudiate it—Section 11of the Sale of Goods Law, Cap.267not 5 applicable—Agency validly terminated even if letter terminating it was written "without prfudice"—Because correspondence headed "without prejudice" serves toprotect position of the writer if what he proposes is not accepteel: By a written agreement dated 24th August,
  1. the respon- 10 dent company, a manufacturer of hydraulic tipping gears in the United Kingdom, appointed the appellant company as its sole distributor in Cyprus of its products for a trial period of twelve months commencing on the 1st September, 1962, in order that both parties miglit decide whether it was mutually beneficial. 15 These arrangements would then be automatically renewable annually subject to a three months* termination clause on either side. According to term 10 of the said agreement, payment of the products should be cash against documents. This term was in 1963 cl-anged to a 90 days' draft credit facilities at the request 20 of Mr. Photiou, the Managing Director of the appellant. On the 21st March, 1967, the respondents addressed to the appellants a letter regarding an outstanding bill of exchange amounting to £1087.17s., which was due on the 19th December, 1966, and had not yet been settled. 422 25 1 C.L.R. 5 10 15 Photiou Bros,andAnother v. Autolifts On the 19thJuly, 1967the respondentswrotea letter* "wiihoutprejudice"totheappellantsregardingtheabovebill,wherein it was,inter alia, stated that "unless and until this billiscleared there can be no question of anyone discussing anything further with you and if you havenot cleared this bill within 14days of this letterthen Iam afraid wemust treat thisfurther refusal asa material breach of contract terminating your appointment as distributor". The appellants-plaintiffs failed to settle the aforesaid amount and the respondents instituted an action for its recovery. Inanactionbytheappellants-plaintiffs against therespondents for damages for breach of contract of agency the trial Court held that the non payment of the draft was so substantial as would go to the root of the whole contract and the defendants were at liberty after this breach by the plaintiffs to repudiate it. Hence this appeal by plaintiff
  2. Counsel for the appellant contended: 20 (a) That the non-payment of the bill by the appellants doesnot goto the root ofthe contract of agency, soas to entitle the respondents to terminate it**. 25 (b) Thattherewasneveravalidtermination ofthecontract of agency by the respondents because the letter of the 19th July, 1967 by which the respondents gave notice to terminate the contract ofagency,waswritten "without prejudice" and was, thus void. 30 35 Held, that the appellants bytheir refusal to pay, committed a breach of a fundamental term of the contract of agency, which entitled the respondents to repudiate it (Decrocase, supra, clearly distinguishable because this case as well as section 11of Cap. 267are concerned with stipulations as to the time of payment of goods sold and delivered, whereas in this case we are concerned with the refusal of the appellants to pay for thevalue of the goodsreceived bythem for which they signed the relevant bill of exchange in accordance with thevaried terms of the contract of agency); accordingly contention (a) must fail. The letter is quoted at pp. 426-427 post. Counsel relied in this connection on section 11 of the Sale ofGoods Law, Cap. 267 and on the case of Decro-Well International S.A. v. Practtoners in Marketing Ltd. [1971] 2 AH E.R.
  3. 423 Photiou Bros, and Another v. Atitolifts
(1984)
(2)That as a general rule, correspondence headed "without prejudice" serves to protect the position of thewriter if what he proposes is not accepted; that if, however, what heproposes is accepted, a different situation is created; but that a notice "without prejudice" toannulasale, failing acceptanceof agiven 5 condition is certainly void; that in the case in hand, however, theletterof the respondents of the 19thJuly, 1967,containedno given condition which the appellants were asked to accept and theappellants were simply asked todischarge their obligation on a bill of exchange which was long overdue; accordingly con- 10 tention (b) must also fail. Appeal dismissed. Cases referred to: Decro-Well InternationalS.A. v. Practtoners in Marketing Ltd. [1971] 2 All E.R. 216; 15 In re Weston ά Thomas Contract[1907] 1 Ch. 244. Appeal. Appeal by plaintiffs against the judgment of the District Court of Nicosia (Demetriades, P.D.C. and Papadopoulos, S.D.J.) dated the 31st May 1973 (Action No. 263/68) whereby 20 the plaintiffs' claim for damages for breach of a contract of agency was dismissed. A. Trimitafyllides with X. Sylhuris, for the appellants. A. Markidcs, for the respondents. Cur. adv. vult. 25 L. Loizou J. Thejudgment of the Court will be delivered by Mi. Justice Malachtos. MALACHTOS J. This is an appeal by plaintiff No.l against the judgment of the Full District Court of Nicosia in Action No. 263/1968 by which its claim against the defendant company for damages for breach of a contract of agency was dismissed with costs. 30 The undisputed facts of the case, shortly put are the following: By a written agreementdated24thAugust, 1962,therespondent company, which is the manufacturer of hydraulic tipping gears in the United Kingdom, appointed the appellant company as its sole distributor in Cyprus of its pioducts for a trial period of twelve months commencing on the 1st September, 1962, in older 424 35 1 C.L.R. Photiou Bros, andAnother v. Autolifts Malachtos J. thatbothpattiesmightdecidewhetheritwasmutually beneficial. These arrangements would then be automatically renewable annually subject to athreemonths'termination clause on either side. According to term 10of the said agreement, payment of 5 the products should be cash against documents. This term was in 1963changed to a 90days' draft credit facilities at the request of Mr.Photiou,the Managing Dircctoi ofthe appellant. Fuith'.r, the amount of the credit facilities would not exceed £1,200- FOBterms on the understanding thai any ordeis being 10 placed over and above this amount, would be supplied "cash against documents" as in the past. Theparties continued their cooperation untiltheend of 1966, when the respondents by letter dated 23rd Novembei, 1966, infoimed the appellant? that theh expoit sales.executive would 15 be visiting Cyprus in an endeavour to inciease efficiency and sales overseas as they became membeis of Steel Barrel and Associate Engineers Group,incorporating Anthony Hoists Ltd., Autolifts and EngineeringCo Ltd., and Canimore SixWheelers Ltd. 20 On the 19th Decembei, 1966, Mr. John Dorey, the Export Sales Executive of the respondents in this appeal, arrived in Cyprus and had a discussion with Mi. Photiou about the representation of their products in Cyprus. He suggested to Mr. Photiou that there should be a joint franchise in Cyprus 25 shared by the appellant company and a ceitain Costas Polydorou, who wasthe agent of Anthony Hoists Ltd., in Cyprus, but this suggestion was not accepted by Mr. Photiou. Mr. Dorey then left the Island leaving Mr. Photiou and Mr. Polydoiou to talk the matter over and see if they could 30 reach an agreement. The mattei remained at that tillthe 23rd January, 1967when the respondents received a letter from the appellant company enquiring as to what had happened with their representation in Cyprus. 35 By letter dated 13th March, 1967,the respondents infoimed theappellantsthatduetothefactthattheirexpoit salesexecutive was away on overseas tours since the middle of January for a period of about two months, the position regarding the representationoftheir productsinCypruswasnot settled and assured 425 Malachtos J. PhotiouBros,andAnotherv.Autolifts
(1984)them that an answer would be forthcoming to this question when the detailed report and suggestions for Cyprus of their export sales manager would be studied by their Board of Directors. On the 21st March, 1967, another letter by the respondents wasaddressed to the appellants regarding an outstanding billof exchange amounting to £1087.17s., which was due on the 19th December, 1966, and had not yet been settled. 5 It must benotedher-,that thisdraft wai in lespect ofthelast order of goods which arrived in Cyprus onthe 20th September, 10 1966,and whichwaspayableonthe 19thDecember,
  1. The respondents in this veiy same letter also notified the appellants thatastotheirrepiesentation in Cyprus,thematter wasreferred to their Board of Directors and that their decision would be communicated to them in the near future. 15 Ai it appears from thetecord ofpioccedings at the tiialsome moie letters weie exchanged between the parties, which, howevei, wereruled asinadmissible in evidencedueto the objection ofcounselintheabsenceofgivingtherelevantnotice toproduce, andwt finally cometothelettei ofthe19thJuly, 1967,addressed 20 by the respondents to the appellants which reads as follows: "Dear Mr. Photiou, Thankyoufor yourletterofthe21stJune,
  2. Asyou say 1 have not so far personally acknowledged your letter of the 22nd May, written 'without prejudice' and I amnow 25 writing direct to you equally 'without prejudice'. In the meantime Mr. Dorey has sought to persuade you to go through with the undertaking that you gave to me personally m the presence of both Mi. P.W. Wells and Mi. Dorey. Atthattimeyou confirmed that you had sold thisequipment and had indeed been paid for it and that irrespective ofotherconsiderationsyou would befulfilling yourdelayed obligation by immediately meeting this overdue bill out of funds which could be made available for the purpose in 35 London. You havenot yet met that billand you are thei foie in diiect breach oftheundertakinggiventomepeisonally. If 426 30 1 C.L.R. 5 10 15 20 25 Photiou Bros, and Another τ. Autolifts Malachtos J. you wiUlefei toyour signed copy of theagreement govern­ ing your original appointment as an Autolifts Distributors you will see that under Item 10 the terms of payment aie 'Cash Against Documents'. You would theiefore perhaps agiee thatyou are also indirect breachof youi legal obliga­ tion to pay. Unless and until this b;ll is cleaied there can be no question of anyone discussing anything fuithei with you and if you have not cleared this bill within 14 days of this lettei then I am afraid we must treat thisfuither refusal as a material breach of contractterminatingyoui appointment as distributor. Sofai as theothei items now raised inyour lettei of the 22nd May are concerned these are entirely rebutted and should you not wish to pay ovei the £l,087.17s.0d. which in item 5page 2of that letter you youiself admitto be due then we must seek sternei action elsewhere in ordei tore­ cover what is due. I hope you will not allow matters to come to this pass and I look forward to our Bankeis eaily confirmation that this bill has been settled. In your eailiei letter you make mention of the British High Commissioner for Trade in Nicosia and I am therefore endorsing a copy of this letter also to Mr. Worsnop, First Secretary (Commercial) at the British High Commission in Nicosia." As the appellants failed to nt-le the afoiesaid amount the respondents instituted before the District Court of Nicosia Action No. 735/1968, for its recovery. As it appears ftom the record of proceedings the appellants, 30 prior to theinstitution of the above action,onthe 18th January, 1968,filedAction No.263/1968, thesubject matterofthisappeal, claiming damages against therespondent*foi bieach of contract of agency, the alleged breach consiiting in the supply of thtir pioducts in Maich and Apii', 1967 to other peisons in Cyprus. 35 The lespondents in theirdefence denied the allegations of the appellants and further stated that the breach of thecontiactof agency was committed by the appellants by their refusal to pay 427 Malachtos J. Photiou Bros,and Another v.Autolifts
(1984)the amount of £1087.850 mils which fell due on the 19th Decembci,
  1. In the meantime, the parties appeared before the Court in Action No. 735/68 and the present appellants submitted to judgment in the sum of £1087.850 mils on condition that cxe- 5 cution should stay 'ill the final determination of Action No.263/
  2. The trial Couit, aftei hearing the evidence of Mi. Phociou, the Managing Diicctoi of the appellants, who was the only witness called by them, and the evidence of the Export Sales 10 Executive of the respondents, Mr. Dorey, who was alsothe only witness called on theii behalf, dismissed the claim of the appellants with costs. The relevant part of their judgment appears on page 44 of the record and reads as follows:"Fiom the evidence before us we are satisfied that there 15 was an agreement between the parties for the soleagency of the pioducts of the defendants in Cypius by the plaintiffs which agreement would be renewable annually on a thiee months' termination clause and payment would be 'cash against documents'. It is also clear that the last order 20 placed by the plaintiffs with the defendants for their products was that of June, 1966, for which the draft was accepted bythe plaintiffs and payable onthe 19th December
  3. We are also satisfied that the defendants terminated their agency agreement with the plainthTs on the 19th July, 25 1967, by their letter dated 19th July, 1967, and that the defendants appointed a new representative in Cypius, Mr. Costas Polydorou, as from the 5th November,
  4. We are not satisfied from the evidence adduced that the defendants supplied any one with their products prior to 30 this date. Mr. Photiou insisted that he had seen products of the defendants circulating in Cyprus some time in March and April,
  5. We cannot say, however, that these goods were supplied by the defendants, themselves as these products, like any other product, might be supplied through 35 another sub agent in England or another agent in another country or they might be second hand." And,, further down at page 45 of the record, they continue:"From.the above findings of fact we are satisfied that the 428 1 C..L.R. 5 10 Photicu Bros,and Another τ. Autolifts Malachtos J. breach of the agreement was committed by the plaintiffs No. I who did not comply withclause No! 10of the contract dated 24th August,
  6. Their breach, in our opinion, was from refusal to pay the draft for £1087.850 mils which fell due on the 19th December,
  7. We think that the non payment of the draft is so substantial as would go to the root of the whole contract and the defendants were at liberty after this breach by the plaintiffs to repudiate it. We have not been convinced that there was any legal justification for the non payment of the bill." Counsel for the appellants argued this appeal on two grounds: The first ground is that the non payment of the bill by the appellants does not go to the root of the contract of agency, as found by the trial Court,so as to entitlethe respondentsto termi15 nate it. He submitted that only in cases of insolvency non pay­ ment goes to the root of the contract and is treated as a breach of a fundamental term thereof. In support of his above ptop­ position he relied on the wording of section 11 of our Sale of Goods Law, Cap. 267, which corresponds to section 10 of the 20 English Sale of Goods Act of 1893 and referred us to the case of Decro-Well International S.A. v. Practtoners in Marketing Ltd. [1971] 2 All E.R. 216 which case, as he put it, is based on the above section. Section II of Cap. 267 reads as follows: 25 "Unless a different intention appears from the terms of the contract, stipulations as to time of payment are not deemed to be of the essence of a contract of sale. Whether any other stipulation as to time is of the essence of thecontract -or not, depends on the terms of the contract." 30 In the Decro case, (supra), "by an oral agreement made in March 1967 the plaintiffs, a French manufacturing company, undertook (i) not to sell their goods in the United Kingdom to anyone other that the defendants, (ii).to ship goods with reasonable despatch on receipt of the defendants' orders and (iii) to supply the defendants on demand with certain advertising material: the defendants undertook (i) not to sell goods competing with the plaintiffs' goods, (ii) to pay for the goods which 35 -429 Malachtos J. Photiou Bros,and Another v.Autolifts
(1984)they bought by billsofexchangedue90daysfrom thedate oftheinvoiceand (iii)tousetheirbestendeavourstocreate a market for the plaintiffs' goods in the United Kingdom and to develop it to itsmaximum potentiality. Theagreement was terminable by reasonable notice on either side. 5 The defendants incurred heavy expenses in promoting the plaintiffs' products in theUnitedKingdom, butas a result of their efforts the sales of those products increased very substantially each year and by April, 1970 accounted for 83 per cent of the defendants' business. The defendants 10 werehoweverconsistentlylateinmeetingthebillsofexchange. They were, as the plaintiffs knew befoie entering into the contract, short of working capital and they had to rely on money received from customeis to meet the bi'ls. The delays in payment varied fiom two to 20 days. The 15 plaintiffs never doubted that the bills would be paid albeit late. Onoccasionsthetim?foi paymenthad beenextended withthiii consent. Thefinancial detriment tothe plaintiffs of thedelay in payment wasinthe area of £20 oneach bill (being the interest on loans from their bank). This loss 20 could havebeen but wasnot debited tothedefendants. At the beginning of April 1970, without a word to the defendants, the plaintiffs arranged for another company to be appointed theirsoleconcessionairesintheUnitedKingdom. On 9th April the plaintiffs wrote to thedefendants ineffect 25 alleging that the defendants had wrongfully repudiated the agreement byfailing topay thebillsontimeand purporting toaccepttherepudiation andbringtheagreementtoanend. In an action by the plaintiffs claiming the amount of the billsaccepted andunpaid,sumsfor goodssoldanddehvered 30 andadeclaration thatthedefendants hadceasedtobefrom 10th April 1970 their sole concessionaires in the UK, the trialjudge gavejudgment for the plaintiffs in respect of the dishonoured bills and the goods sold and dehvered, and for the defendants on their counterclaim for a declaration that 35 they remained the plaintiffs' sole concessionaires in the United Kingdom. Hefurther held that theagreement was only terminable by 12months' notice by either party and ordered the plaintiffs to pay the defendants damages for their own breach of contract. The plaintiffs undertook 40 (a)tocontinue supplyingthedefendants withtheirproducts 430 1 C.L.R. 5 10 15 20 PhotouBros, andAnotherv.Autolifts Malachtos J. until the expiry of 12 months' notice to terminate the agreement, (
  1. b)not to appoint any other persons as concessionaires for their products in the United Kingdom until that date and (
  2. c)not themselves to sell or distribute such products in the United Kingdom until that date. They subsequently served a notice to determine the agreement on the defendants. Held. (I)Thefailure topay the billsofexchange promptly and the likelihood of similar delays in the future did not constitute a repudiation of the agreement bythe defendants; such a breach could only amount to a repudiation which the plaintiffs would beentitled to accept as a cancellation of the contract if the breach went to the root of thecontract or (per Buckley LJ) if the effect of the breach was such as to deprive the plaintiffs as the injured party of the enjoyment of so important a part of the benefits to which they were entitled under the contract as to make it unfair to relegate them to the recovery of damages for each breach as it occurred; since nothing expressed or implied in the agreement suggested that the terms relating to time of payment were of the essence of the contract, the inference drawn from the practical consequences of the defendants* conduct was that the breaches did not go to the root of the contract." 25 It is clear from the above that our section 11of Cap. 267 and the Decrocase, supra, are concerned with stipulations as to the time ofpayment of goods sold and delivered, whereasin the cast in hand weaie concerned with therefusal of theappellantstopa> foi thevalue ofthe goods received bythemfor whichtheysigned 30 the relevant bill of exchange in accordance with the varied terms of the contract of agency. The Decro case, supra, is, therefore, clearly distinguishable and so we are in full agreement with the findings of the tria Court, that the appellants by their refusal to pay, committed i 35 breach of a fundamental term of the contract of agency, whicl entitled the respondents to repudiate it. The second ground of appeal is that there was never a valic termination of the contract of agency by the respondents Counsel for the appellants submitted that since the letter of th 431 Malachtos J. Photiou Bros, and Another %. Autolifts
(1984)19thJuly, 1967, by which the respondentsgave notice totermi­ nate the contract of agency, was written "without prejudice", is void. He relied on the case of In Re Weston&Thomas's Contract [1907] I Ch.244. Inthatcase a freehold ground rent, secured by a lease expiring in 1938, was sold by auction. The 5 12thcondition provided that "if any purchaser shall make and insist on any objection or requisition either as to the title,con­ veyance, or any matter appearing on the particulars, conditions, or abstract, or otherwise, which the vendors shall be unableto, or ontheground of difficulty, delay, orexpense, or onany other 10 reasonable ground unwilling, to remove or comply with, the vendors shall, notwithstanding any previous negotiation or litigation, be at liberty, ongiving to the purchaser notlessthan ten days notice in writing, to annul the sale, in which case, unless the objection or requisition shall have been in themean- 15 time withdrawn, the sale shall at the expiration of the notice be annulled, the purchaser being in that event entitled to a return of the deposit but without interest, costs or com­ pensation. The fee was vested in two vendors, as to two undivided thirds beneficially, and as to the remaining third 20 in trust for their brother. Succession duty on the death of χ tenantfor life of the entirety had been paid on the ground rent only. The purchaser insisted that the vendors should -ommute and pay the further duty, amounting to a few shillings, which would be payable if any of the three brothers 25 [who in 1938 would all be over 90 years of age) should be ilive on the determination of the lease. The vendors refused but by a letter expressed to be 'without prejudice' they offered in indemnity and gave notice in case of non acceptance to vnnul the sale." 30 At page 247 of the report Swinfen Eady J., aftei stating the acts and expressing his regret that a vendor and purchaser iummons should have been issued where theamountin dispute *vas so small, continued:"Although in my opinion thepurchaser would have run no 35 substantial risk if she had accepted the vendors' indemnity for this small amountof contingentduty, I cannotsay that inpoint of law she was boundtoacceptanindemnity. The vendors were boundtoclear theproperty,and had nolegal 432 I C.L.R. 5 10 15 20 Photiou Bros, and Another v. Autolifts Malachtos right to say they would not discharge the incumbrance, b would only give an indemnity. They were bound to di charge the incumbrance. Instead of doing so, their solic tors wrote offering an indemnity and saying: 'Failir. your acceptance of this, we hereby give you notice und· the 12th condition to annul the sale... We write of coun entirely without prejudice.' In my opinion a letter writte 'without prejudice' was not a valid notice to annul the sa within the 12th condition. I am further of opinion that the vendors were not an are not entitled to rescind merely because the purchase asked them to clear off this small charge, and they did ne see their way to do so. The requisition is not a requisitio which thevendors are unable,*oron theground of difficult; delay, or expense, or on any other reasonable ground un willing' tocomply with within the 12thcondition. Therei no evidence that there would be any 'difficulty, delay, ο expense' in assessing and commuting the duty, and th vendors have shown no 'other reasonable ground' for re fusing to do so. There is really 'no reasonable groune why they should not ascertain and pay this small amoum The purchaser is therefore right in her contention that th duty must be borne by the vendors, and that under th circumstancesthey were notandare notentitled to rescind. 25 It is abundantly clear that the ratio decidenti in the abov case was not that the notice to annul thesale was written "with out prejudice", but that the vendors were bound to clear th property, and had no legal right to say that they would no discharge the encumbrance, but would only give an indemnity 30 Their position in law would have been the same even if thenotic had not been written "without prejudice". As a general mk, correspondence headed "without prejudice' serves to protect the position of the writer if what he proposes i not accepted. If, however, what he proposes is accepted, . 35 different situation is created. But a notice "without prejudice' to annul a sale, failing acceptanceof a given condition,as in th case of Re Weston, supra, is certainly void. In the case in hand, however, the letter of the respondents ο 43*. Malachtos J. Photiou Bros, and Another v. Autolifts
(1984)the 19th July, 1967, contained no given condition which the appellants were asked to accept. The appellants were simply asked to discharge their obligation on a bill of exchange which was long overdue. Forthe reasonsstated above,wedismisstheappeal withcosts. 5 Appealdismissedwith costs* 434

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