<\/p>\n
This case was heard on 4 December 2004 and judgment was given by Mr Justice Andrew Smith on 12 January 2004. It was heard in the Commercial Court which is a specialist court forming part of the Queen’s Bench The Facts<\/strong><\/p>\n The facts appear in the first part of the judgment of Andrew Smith J<\/strong>. The dispute arose under a contract made on 10 August 2001 by On 17 August 2001, the price under the contract The Tribunal Issue<\/strong><\/p>\n LD claimed that Reliance were at fault for failing to The Tribunal Decision<\/strong><\/p>\n The tribunal held that LD were entitled to Reliance are entitled to damages for breach of the The Arguments on Appeal<\/strong><\/p>\n It was common ground that the quantum of the (2) The measure of damages for breach of warranty is (3) In the case of breach of warranty of quality such Counsel for LD argued that while the analogy drawn by The Decision of Andrew Smith J.<\/strong><\/p>\n His Lordship held (at para.17) that as a result of the I consider that in a case such as the present, where He rejected the argument that for the impact of a Principles of remoteness look to consequences of a However, it did not follow that because the financial LD had argued that they had discharged this burden by Having established that this was the correct approach, The tribunal proceeded upon the erroneous basis that The judge concluded by expressing sympathy for the The Effect of the Decision<\/strong><\/p>\n The procedural consequence of the appeal was that the I began by obtaining a copy of [2004] 2 Lloyds Rep and For the purpose of the first part of the article it It was then necessary briefly to consider the issues Because the argument turned upon the alleged analogy For a comparison of s.12(2)(b) and s.53(3) of the 1979 Turning to electronic sources, I first sought to I then searched the same databases under their In structuring the article, I considered it important Bradgate, R., Commercial McKendrick, E., Poole, J., textbook Treitel, G., The LexisNexis Westlaw<\/p>\n Cases cited in <\/p>\n","protected":false},"excerpt":{"rendered":" …<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[46],"tags":[85],"class_list":["post-2426","post","type-post","status-publish","format-standard","hentry","category-free-law-essaystrading-law","tag-uk-law"],"yoast_head":"\n
\nDivision of the High Court dealing with complex cases of a commercial nature.
\nIt was an appeal by the Claimant sellers Louis Dreyfus Ltd from an arbitration
\naward dated 25 March 2003 by the panel of arbitrators of the Refined Sugar Association.
\nThe arbitration decision had been in favour of the Defendant buyers reliance
\nTrading Ltd. Leave to appeal had been granted by Mr Justice Colman. The
\narbitrators had held, inter alia<\/em>, that the measure of damages for the
\nbreach by the claimant of the implied warranty of quiet possession was the
\ndifference between the value of the sugar when it became available to the
\nDefendant and the contract price. Both parties were represented by junior
\nCounsel.<\/p>\n
\nwhich Louis Dreyfus Trading Ltd (LD) sold to Reliance Trading Ltd (Reliance)
\nsome 7000 m.t. of white crystal sugar of Brazilian origin. The sale was made
\non a C&FFO Banjul basis at a price of US $257.43 per m.t. At the time the
\ncontract was made, the sugar was on board and already being discharged from a
\nvessel, the m.v. Dawn <\/em>which was berthed at Banjul, the capital of the
\nGambia. However, on 20 June 2001, an associated company of Reliance had
\nagreed to sell white crystal sugar to Boule & Co Ltd (Boule) in Banjul.
\nThe vessel which had been carrying that sugar was delayed. Reliance learned
\nin early August 2001 that LD had available a parcel of 7000 m.t. of sugar
\nsimilar to that which Reliance had agreed to sell to Boule. Although reliance
\nonly needed 5000 m.t. to fulfill its contract with Boule, LD was only prepared
\nto sell them the whole parcel . However, Boule agreed to purchase 7000 m.t.
\nat a discounted price and to accept delivery from the Dawn<\/em> rather than
\nthe original vessel. There is scope for some doubt as to exactly when this
\ncontract was entered into but Andrew Smith J found as fact that it had been
\nconcluded by the time LD made their sale contract with Reliance on Aug. 10.
\nThe consequence of this is that at the time that Reliance and LD entered into
\ntheir contract, both parties were aware of what had been agreed between
\nReliance and Boule and contemplated that the sugar from the Dawn<\/em> was
\nbeing delivered to Boule, i.e. Boule were buying the very sugar that LD had
\nagreed to sell to Reliance.<\/p>\n
\nbetween LD and Reliance was agreed at US $257.43 per m.t. Payment was made
\nfor 3000 m.t. by Reliance to LD and by Boule to Reliance. However, discharge
\nof the sugar was then disrupted by a dispute which arose between LD and Shyben
\nMadi & Sons Ltd (Madi). This came about because earlier in 2001 LD had
\nagreed to sell a quantity of sugar to Madi. Madi claimed that this was
\nsubject to an exclusivity agreement whereby they were to be the only
\nconsignees of sugar from the Dawn<\/em> in Banjul. By 13 August 2001, Madi’s
\nsugar had been discharged but they nonetheless on 29 August 2001 obtained an
\ninjunction in the Gambian courts restraining further discharge. This did not
\nrecommence until the injunction was lifted on 27 September 2001. This delay
\nmeant that it was not until12 October 2001that the vessel had discharged the
\n3000 m.t. already paid for. At this point, LD asked Reliance to pay for the
\nremaining 4000 m.t. but by this time the price of sugar in Banjul had
\ndropped. A reduced price for this quantity was negotiated but the substitute
\ncontract was never performed.<\/p>\n
\npay for the 4,000 m.t. and also demurrage. They denied responsibility for the
\ndelay in the discharge on the ground that there had never been an exclusivity
\nagreement with Madi and that the injunction was therefore unjustified.
\nReliance disputed the demurrage claim and asserted that there had indeed been
\nan exclusivity agreement, that LD had therefore been responsible for
\ninterference with goods and were consequently in breach of the warranty that
\ngoods were free from charge and encumbrance under s.12(2)(a) of the Sale of
\nGoods Act 1979 and breach of the warranty of quiet possession under 12(2)(b) of
\nthat Act. Accordingly, Reliance claimed damages calculated on the basis of the
\ndifference between the contract price of the goods (US $257.43) and their lower
\nvalue when they eventually became available (US $224.00).<\/p>\n
\ndemurrage. However, they also found that there had <\/em>been an exclusivity
\nagreement. It followed that the injunction resulted from LD’s breach of that
\nagreement and that LD were therefore in breach of the warranty of quiet
\npossession. LD’s claim for damages for breach of contract was rejected on the
\ngrounds that their losses flowed from their own breach. Reliance’s
\ncounterclaim for breach of contract was upheld. These findings were not
\nsubsequently appealed. However, on the issue of quantum of damages, the
\ntribunal held:<\/p>\n
\nwarranty of quiet possession. Under s.53(3) of the Sale of Goods Act 1979, in
\nthe case of a breach of warranty of quality<\/em> [emphasis supplied] a prima
\nfacie<\/em> measure of damages is the difference between the value of the goods
\nat the time of their delivery to the buyer, and the value they would have if
\nthey had fulfilled the contract. We regard the breach of warranty of quiet
\npossession as being analogous to the breach of warranty of quality and such a
\nmeasure of damages should apply.<\/p>\n
\ncounterclaim was an issue before the tribunal but it had not been the subject
\nof detailed argument at that stage. LD asserted that the tribunal had wrongly
\napplied the measure of damages contained in s.53 which provides:<\/p>\n
\nthe estimated loss directly and naturally resulting, in the ordinary course of
\nevents, from the breach of warranty.<\/p>\n
\nloss is prima facie <\/em>the difference between the value of the goods at the
\ntime of their delivery to the buyer and the value they would have had if they
\nhad fulfilled the warranty.<\/p>\n
\nthe tribunal was reasonable as a starting point, it is no more than a prima
\nfacie<\/em> measure. It was argued that the tribunal had wrongly ignored the
\nsub-sale to Boule and that when this was taken into account the assumption was
\ndisplaced. Reliance argued that any profit made on the sub-sale to Boule was
\na collateral benefit and therefore irrelevant to the question of damages.
\nBoth parties made reference to the decision in Bence Graphics International
\nLtd v Fasson UK Ltd<\/em>.
\nLD adopted a broad interpretation of this decision arguing that it made it
\nappropriate to take the sub-sale into account. Reliance argued for a
\nrestrictive interpretation, namely that it only applied I situations in which
\nthe parties contemplated that the only possible loss a buyer might suffer was
\nthe potential liability to a sub-buyer.<\/p>\n
\napplication of the principles of remoteness of damage, profit or loss made by a
\nbuyer on a sub-sale is generally irrelevant in an assessment of damages for
\nbreach of warranty. If a particular sale was not within the contemplation of
\nthe parties at the time of the making of the agreement, damages are to be
\nassessed without reference to it even if the seller is aware that the buyer is
\nin the business of reselling such goods (Kwei Tek Chao v British Traders and
\nShippers Ltd<\/em>).
\nHowever, if a particular sub-sale was in contemplation of the parties, either
\nparty might be entitled to raise it in relation to adjusting the quantum of
\ndamages in either direction (Biggin & Co Ltd v Permanite Ltd<\/em>).
\nIt was necessary to consider in some detail the case of Bence Graphics<\/em>.
\nThis was a case in which a seller successfully argued in the Court of Appeal
\nthat the impact of sub-sales should be taken into account. The buyer was
\npassing on to his customers vinyl film for use in their manufacturing
\nprocesses. Defects in such vinyl would in all probability only be discovered
\nwhen utilised by the end-user. In such circumstances, it was clear that the
\nbuyer would wish to recover from the seller any loss incurred as a result of
\nclaims against him by his customers. His Lordship rejected the remoteness
\nargument (at para.23):<\/p>\n
\nthe parties had in their contemplation when making their contract that the
\nbuyer was committed to deliver the same goods to a sub-buyer under a specific
\ncontract, principles of remoteness do not require that the sub-sale be
\ndisregarded in assessing the buyer’s damages. It is to be taken to have been
\nwithin the parties’ reasonable contemplation, as a serious possibility or
\nconsequence not unlikely to result from LD being in breach of their
\nobligations, that the loss suffered by Reliance might depend upon the impact of
\nthe sub-sale to Boule.<\/p>\n
\nsub-sale to be taken into account this should be the only possible loss
\nenvisaged by the parties (at para.24):<\/p>\n
\nbreach that the parties are to be taken to have contemplated as serious
\npossibilities or not unlikely results, and not to inevitabilities <\/em>[emphasis
\nsupplied].<\/p>\n
\nimpact on Reliance of the sale to Boule is not too remote to be brought into
\naccount, the tribunal was in fact wrong to assess damages in the way that they
\ndid. As had been held in Bence Graphics<\/em>, the difference between the
\nvalue of goods as delivered and their value if the contract had been observed
\nis only the prima facie<\/em> measure of damages. If either the buyer or
\nseller would have the court depart from that assumption, the evidential burden
\nis upon that party to rebut it. It was open to LD to demonstrate to the
\ntribunal on the evidence that the impact of the sub-sale was such as to render
\nthe prima facie<\/em> measure of damages inappropriate in this particular case
\non the basis that its application does not result in Reliance being compensated
\nfor the loss which they actually suffered. Had they done so?<\/p>\n
\npointing to the agreement between Reliance and Boule and the payments made by
\nBoule for 3000 m.t. of sugar. However, His Lordship pointed out that this did
\nnot necessarily mean that the true quantum of Reliance’s loss was not in fact
\nstill the difference between the market value of the sugar as warranted and its
\nvalue when in fact delivered. Although reliance were contractually obliged to
\ndeliver to Boule sugar from the Dawn<\/em> it does not follow that Boule
\ninsisted upon that obligation being observed or could properly have done so
\nwhile still discharging their duty to mitigate their loss. Similarly, if the
\nsale by LD to Reliance and the onward sale by Reliance to Boule were on
\nsubstantially similar terms it may well have been that the true damage as
\nproperly calculated was still the difference between the value warranted and
\nthe value as delivered. It had been argued o behalf of Reliance that these
\nfactors meant that LD had not succeeded in establishing that the presumption
\nhad been displaced. Andrew Smith J stated (at para.27) that he had initially
\nbeen attracted by this reasoning. It is easy to see why: if the effect of
\ndisplacing the presumption and allowing consideration of the effect of the
\nsub-sale was, in the particular circumstances of the case, to allow in evidence
\nof the effect of the sub-sale to Boule and if a consideration of the actual
\neffect of that sub-sale were to arrive at precisely the same result as the
\napplication of the presumption in the first place, what would be the point of
\nundertaking the exercise. It has to be admitted that on the particular facts
\nof this case, the effect of rebutting the presumption might have been otiose.
\nThe object of displacing the presumption is to ensure that a party is not
\nunjustly enriched by its application. The object of damages is to place a
\nparty in the same position that they would have occupied had the breach not
\noccurred. While in the majority of cases, the true measure of loss will be
\nthat incurred as a result of the difference between the value as warranted and
\nthe value as delivered, it is possible to envisage circumstances in which the
\neffect of a particular sub-sale is such as to mean that the claimant has not in
\nfact suffered as much loss as would be calculated on this basis and may even,
\nif he were particularly commercially acute and fortunate, have profited.
\nTherefore, the blanket application of the principle might mean that at best the
\nclaimant had not been sufficiently required to mitigate his loss and at worst
\n(from the perspective of the Defendant might be placed in a position of actual
\nadvantage. Accordingly, Andrew Smith J resisted the initial temptation of
\nconcluding that it was appropriate to say that the presumption had not been
\ndisplaced because, had it been and the different measure of damages applied, it
\nwould have made no difference to the end result and opted instead for the
\nlogically more rigorous approach of examining whether the presumption ought to
\nbe displaced irrespective of the perceived end result of doing so.<\/p>\n
\nHis Lordship proceeded to consider whether it had been followed by the
\ntribunal. He concluded that it had not (at para.27):<\/p>\n
\nthe approach that they should adopt to the assessment of Reliance’s damages was
\nuncontroversial. Although they expressed the view that it was appropriate in
\nprinciple to assess damages by adopting by analogy the measure set out in
\nsubs.53(3) of the 1979 Act, they do not appear to have considered whether or
\nnot LD had rebutted the presumption that this measure should be adopted.<\/p>\n
\ntribunal: although this issue had become the subject of the instant appeal,
\nthe issue of the measure in damages in general and the issue of whether the
\npresumption should be rebutted had been raised so faintly that it was
\nunderstandable that the tribunal had not grasped that this was an issue of real
\nsignificance between the parties. Accordingly, the appeal was allowed.<\/p>\n
\naward of damages was remitted to the tribunal for reconsideration<\/strong>. The actual
\neffect of the ruling is perhaps more significant in terms of that which it did
\nnot achieve. It must be clearly appreciated that it has not been held that the
\ntrue measure of damages in cases of breaches of the warranty of quiet enjoyment
\nis the actual loss suffered by the buyer having regard to the onward fate of
\nthe goods and the profit to be derived from such further transactions. On the
\ncontrary, the approach of the tribunal in holding that the measure of damages
\nis analogous to that which is applied in cases of breach of warranty of quality
\nhas been endorsed – but only insofar as this has been held to be the correct prima
\nfacie<\/em> approach. In such cases, following Bence Graphics<\/em>, where
\nfurther sub-sales are involved and a party contends that the actual effect of
\nsuch sales being concluded is such as to render the prima facie<\/em> measure
\nof damages inappropriate, consideration must be given to whether the
\npresumption has been rebutted. The case therefore represents useful guidance
\nas to the correct approach to the question of assessing the measure of damages
\nin cases of breach of the warranty of quiet enjoyment implied by s.53(2) of the
\n1979 Act. However, to what extent is it influential? By virtue of the
\noperation of the doctrine of precedent, the decision of the High Court in Louis
\nDreyfus Trading <\/em>is binding upon tribunals such as that to which the award
\nof damages was remitted for reconsideration. It will be followed by the High
\nCourt to the extent that to do so is not contrary to decisions of the Court of
\nAppeal. It is incapable of overruling Bence Graphics<\/em> being a decision
\nof a superior court but it does not in fact purport to do so. The case
\nprovides a useful refinement of the decision in Bence Graphics<\/em> which
\nalthough making clear the fact that the difference between the value of goods
\nas warranted and the value of goods as delivered was only a prima facie<\/em> rule, left open the question of the extent to which the presumption was
\ndeparted from in cases involving sub-sales. Thus it was still possible for
\nReliance to argue that such a departure must be restricted to cases in which
\nthe loss incurred upon a sub-sale could only become the appropriate measure of
\ndamages when this was the only loss contemplated by the parties. This will no
\nlonger be possible as a result of the rejection by Andrew Smith J that this was
\nthe correct application of the rules relating to remoteness of damage. It
\nwould be interesting to know the outcome of reconsideration by the tribunal of
\nthe award: as predicted upon appeal, the result may well have been the same in
\nthat particular case but may well now be different in others where their
\nspecific facts warrant it.<\/p>\nMethod<\/h4>\n
\nlooking up the case report beginning at page 243. I disregarded the head note
\nsince this is merely the law reporter’s summary of the facts and interpretation of the ratio decidendi<\/em> of the case. For this reason, head notes taken alone can be misleading and
\nsometimes even wrong.<\/p>\n
\nwas necessary to identify the material<\/em> facts of the case and to
\nreproduce such of these as are necessary for an understanding of the issue
\nwhich falls to be determined. For this reason, it was not necessary to
\nreproduce full details of, for example, the issue between LD and Madi save that
\nit was necessary to understand the argument in relation to the exclusivity
\nclause since this was the subject of a finding of fact by the tribunal.<\/p>\n
\nbefore the tribunal in order to identify and isolate that which became the
\nsubject of appeal, namely the correct measure of damages.<\/p>\n
\nbetween the quantum of damages appropriate in the case of the breach of
\ncovenant of quiet enjoyment and that which applied to breach of warranty, I
\nread s.53 of the Sale of Goods Act 1979. As a result of their use in argument
\nand the ruling of Andrew Smith J, I read Kwei Tek Chao<\/em>, Biggin<\/em> and Bence Graphics<\/em>.<\/p>\n
\nAct, I consulted Treitel <\/em>(p.793), Poole <\/em>(p.213), and Bradgate <\/em>(pp.363-4).
\nI located a useful commentary on the approach to measure of damages under
\ns.53(3) in McKendrick <\/em>(pp.505 et seq<\/em>). Although this text
\npredates the decision in Louis Dreyfus Trading<\/em>, it contains a helpful
\ndiscussion of Bence Graphics<\/em>.<\/p>\n
\nestablish by means of searches under the case name in Westlaw <\/em>and LexisNexis
\nButterworths (LNB)<\/em> whether there had been any subsequent decisions in which Louis Dreyfus Trading <\/em>had been considered. This search proved negative
\nsave that it did, of course, yield references to reports of the case itself.<\/p>\n
\nrespective articles indexes using the case name the keyword. A large number of
\nhits were upon wholly unrelated cases which happened also to contain the name ‘Louis Dreyfus’! Where hits were successful they
\nrelated to articles such as SL Rev 2005, 44, (Spr), 8-10 and Buyer 2004, Oct.,
\n3-6 which were merely case notes of the type called for in this article.
\nAccordingly, I did not rely upon them having regard to the plagiarism rules.<\/p>\n
\nnot merely to rehearse the facts and judgment but to draw attention to the
\ncompeting arguments advanced on behalf of LD and Reliance. The effect of the
\ncase was of particular interest since although it clarifies the point at issue
\nand provides guidance for the future, a consideration of the application of the
\ndoctrine of precedent was necessary in order to draw attention to the limitations
\nupon the effect of the decision.<\/p>\nBibliography<\/h4>\n
\nLaw<\/em>, (3rd<\/sup> Ed., 2003)<\/p>\n
\n(Ed.), Sale of Goods<\/em>, (2000)<\/p>\n
\non Contract Law<\/em>, (7th<\/sup> Ed., 2004)<\/p>\n
\nLaw of Contract<\/em>, (11th<\/sup> Ed., 2003)<\/p>\n
\nButterworths (LNB)<\/p>\n
\ntext<\/p>\n