COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Mr. Justice David Steel
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE LAWS
LORD JUSTICE MOORE-BICK
| UZINTERIMPEX J.S.C.
|- and -
|STANDARD BANK PLC
Mr. Stephen Phillips Q.C. and Mr. Michael Lazarus (instructed by Jones Day) for the respondent
Hearing dates : 12th-14th May 2008
Crown Copyright ©
Lord Justice Moore-Bick :
"1. Uzinterimpex is an Uzbek state cotton trading company. It was formerly known as JSC Innovatsia ("Innovatsia"). The defendant ("SBL") is a London Bank which, at the material time, acted as bankers to an English cotton purchasing company, A. Meredith Jones & Co Ltd ("AMJ"). SBL was also the agent and issuing bank for a syndicate of banks including itself ("the Syndicate") which, pursuant to a written Facility agreement dated 24th October 1997 ("the Facility"), made a pre-export finance facility available to AMJ for the purchase of cotton from Uzinterimpex.
2. The Claimant and AMJ had earlier entered into a written sale contract dated 20 September 1997 ("the sale contract"), pursuant to which the Claimant agreed to sell, and AMJ agreed to buy, a series of consignments of cotton ("the cotton") on FOB terms totalling 50,000 mt. The sale contract required AMJ to make an advance payment to the Claimant in respect of 90% of the value of the cotton, with the balance of the payment to be by letter of credit. AMJ was also to arrange for an advance payment guarantee with the National Bank of Uzbekistan ("NBU") for the total value of the advance payment.
3. AMJ and SBL (as an agent of the Syndicate) entered into a security deed dated 24 October 1997 pursuant to which, as security for the performance of its obligations under the facility, AMJ assigned to SBL all its rights, title and interest under the sale contract and in the cotton, although AMJ was to be free to deal with and sell the cotton in the ordinary course of its business, provided that there was no default under the facility.
4. On 5 November 1997 NBU opened the advance payment guarantee ("APG") in favour of the defendant in the sum of US$65,674,688.40. The APG was subject to UCP 458 and was to be construed in accordance with English law. It expressly provided that the amount of the APG was automatically reduced by 90% of the value of each consignment of cotton delivered to AMJ on the basis of tested telexes sent by SBL to the NBU, delivery to be proved (and this was a crucial feature of the subsequent dispute) by the presentation by NBU or by AMJ of the shipping documents and commercial invoices as required by the letter of credit. (Because of a fall in the cotton market, the 90% figure was later amended to 100%, in line with the similar amendment to the sale contract.)
5. On 7 November 1997 SBL opened an irrevocable letter of credit on the instructions of AMJ in favour of the Claimant ("the LOC"). The LOC required certain documents to be presented at the counters of the Bank. These included a full set of three bills of lading (or a waybill or warehouse certificate), together with a certificate of origin, a quality certificate and a certificate of acceptance.
6. On 12 November 1997 SBL duly made an advance payment to the Claimant's account at NBU in the amount of the APG, thereby activating it."
". . . . . we, the National Bank of Foreign Economic Activity of the Republic of Uzbekistan, Tashkent (Uzbekistan), hereby irrevocably undertake and guarantee to refund to you on first demand, irrespective of the validity, enforceability and the effects or any subsequent variation or amendment to the above mentioned contract and waiving all rights of objection, defence, subrogation or suretyship arising therefrom, and free from counterclaim, setoff, deduction and taxes, the advance payment in the amount of USD 65.674.688,40 (sixty five million six hundred seventy four thousand six hundred eighty eight US Dollars and forty cents) upon receipt of your ('STANDARD BANK LONDON LIMITED', London) duly signed request for payment stating that [Uzinterimpex] have failed to fulfil their contractual deliver obligations.
The total amount of this indemnity will be reduced by any payment effected hereunder . . . . .
The amount of this guarantee will automatically be reduced in proportion by 90PCT of the value of each consignment which is delivered to 'A. Meredith Jones and Co. Ltd', Great Britain, on the basis of tested telexes send by ('STANDARD BANK LONDON LIMITED' to us that guarantee may be redused to the shipment(s) effected by USD . . . . . (USD amount to be indicated). Each delivery shall be proved by the presentation by the National Bank for Foreign Economic Activity of the Republic of Uzbekistan or by 'A. Meredith Jones and Co. Ltd', Great Britain, at the counters of 'STANDARD BANK LONDON LIMITED' of the shipping documents and the original of the relative commercial invoices as are required under your letter of credit issued in favour of [Uzinterimpex].
Our guarantee is valid until 31.07.98 (31st. of July 1998) and expires in full and automatically if your claim has not been made on or before that date, regardless of such date being a banking day or not . . . . . .
This guarantee is subject to UCP 458 . . . . . "
The judgment of David Steel J.
(a) Implied term
"Guarantees by their nature are separate transactions from the contract(s) or tender conditions on which they may be based, . . . . . . . . The duty of a Guarantor under a Guarantee is to pay the sum or sums therein stated on the presentation of a written demand for payment and other documents specified in the Guarantee which appear on their face to be in accordance with the terms of the Guarantee."
"in the event that any demand [on the guarantee] should ultimately be found to have exceeded the loss sustained by AMJ and/or the defendant or was otherwise found to have been excessive, the defendant should repay to NBU the amount exceeding such loss or the amount by which such demand was excessive."
That was reformulated slightly by the end of the trial as follows:
"that the Bank [would] account to NBU (or the claimant as its assignee) in circumstances where the Bank had received both the proceeds of the guarantee and the proceeds of the cotton to which it related."
It was said that such a term was to be implied by law or that it was necessary in order to give business efficacy to the contract or to reflect the obvious intentions of the parties. If it were not, it was said, the Bank would obtain a windfall.
"All documents specified and presented under a Guarantee, including the demand, shall be examined by the Guarantor with reasonable care to ascertain whether or not they appear on their face to conform with the terms of the Guarantee. Where such documents do not appear so to conform or appear on their face to be inconsistent with one another, they shall be refused." (Emphasis added).
However, they cannot be expected to be aware of, or to implement, terms that do not appear on the face of the documents. The implied term for which Uzinterimpex contends would have the potential effect of imposing on the Bank a liability which could not be identified from the face of the document and which would be very uncertain in its effect, since as pleaded the term leaves it wholly unclear when or by whom the demand is to be found to have exceeded the loss sustained by AMJ or might otherwise be found to be excessive.
(b) The alternative argument
(c) Claim to the proceeds of sale
(i) The funds as Uzinterimpex's property
(ii) Knowing receipt of trust property
"15.1.1 Each Bank and the Issuing Bank hereby irrevocably appoints the Agent to act as its agent in connection with the administration of the Facility and to act as its agent and trustee in connection with the Security Documents and for such purposes irrevocably authorises the Agent to take such action and to exercise and carry out all the discretions, authorities, rights, powers and duties as are specifically delegated to the Agent in this Agreement and each Security Document together with such powers and discretions as are incidental thereto.
15.2.1 The Agent will promptly account to the Issuing Bank or the Lending Office of each Bank for the Issuing Bank's or such Bank's due proportion of all sums received by the Agent for the Issuing Bank or such Bank's account, whether by way of repayment or prepayment of principal or payment of interest, fees or otherwise.
15.9.1 In performing its functions and duties under this Agreement, the Agent shall act solely as the agent for Issuing Bank and the Banks and save as expressly provided herein and in the Security Documents shall not be deemed to be acting as trustee for the Issuing Bank or any Bank and shall not assume or be deemed to have assumed any obligation as agent or trustee for, or any relationship of agency or trust with the Borrower."
(c) The claim in conversion - mitigation
(i) Did Uzinterimpex fail to act reasonably?
"It is plain that the question what is reasonable for a person to do in mitigation of his damages cannot be a question of law but must be one of fact in the circumstances of each particular case."
and Scrutton L.J. said at page 589
"Mr. Matthews has contended that in considering what steps should be taken to mitigate the damage all contractual relations with the party in default must be excluded. That is contrary to my experience. In certain cases of personal service it may be unreasonable to expect a plaintiff to consider an offer from the other party who has grossly injured him; but in commercial contracts it is generally reasonable to accept an offer from the party in default. However, it is always a question of fact. About the law there is no difficulty."
(ii) Does conversion give rise to a duty to mitigate?
"The circumstances here were that the only remedy in law which the plaintiff initially had for the breach of contract was a right of action in damages. If it be said that an alternative remedy was offered to him by the defendants of selling the house back to them I would say that the plaintiff was not bound to choose between the two remedies. It seems to me that if Mr. Scrivener's contentions were right it would logically follow that if the offer that had been made by the defendants had been not "We will take the house back" but "We will pay you £1,900 damages" and the plaintiff had then, for some reason, refused that offer and had brought an action for damages it could be said that he ought to have accepted the offer and thereby mitigated his damages and therefore he was entitled to nothing at all. That cannot be. Clearly what would happen in those circumstances would be that the defendants, if they were wise, would make a payment into court of the £1,900 and the plaintiff would suffer in respect of costs. But it could not possibly be suggested that the refusal to accept the offer, even if such refusal were wholly capricious, was something that deprived the plaintiff of his right to substantial damages altogether."
"An examination of the provisions of the 1977 Act in the light of the existing rules of the common law indicates that when making an award of damages under s 3 of the 1977 Act the court is faced with a number of competing considerations. These considerations include: (a) the fact that the tort of detinue has been abolished, (b) the fact that the remedies now available for the tort of conversion (hitherto a purely personal action) have in effect extended the scope of the tort so that a proprietary claim can be asserted; (c) the general rule that where goods have been irreversibly converted their value is assessed at the date of conversion. It may be noted, however, that even where goods are articles of ordinary commerce the damages may be assessed by reference to the cost of replacement goods if the cost has increased between the date of conversion and the date when the plaintiff, acting reasonably, ought to have obtained the replacement: cf Emp Exportadora de Azucar v Industria Azucarera Nacional SA, The Playa Larga and Marble Islands  2 Lloyd's Rep 171; (d) the former general rule that in detinue the value of the goods detained was assessed at the date of judgment; (e) the fact that after conversion the value of goods may fall instead of rise.
I have come to the conclusion that if one takes account of all these considerations and the fact that several different remedies are available under s 3 of the 1977 Act it is not possible, or indeed appropriate, to attempt to lay down any rule which is intended to be of universal application as to the date by reference to which the value of goods is to be assessed. The method of valuation and the date of valuation will depend on the circumstances."
"Once it is kept in mind that there is no absolute rule regarding the date as to which the goods are to be valued, the difficulties in the interpretation and application of s.3 substantially disappear. The sum to be specified in the present case as payable by the defendant as the alternative to returning the two cars is to be calculated by reference to the value of the cars at such date as will fairly compensate the plaintiff for its loss if the defendant chooses to pay the sum and keep the cars.
This conclusion involves interpreting the references in s 3 to 'damages by reference to the value of the goods' as not compelling the court always to assess such damages by reference to the up-to-date value of the goods. In other words, for it comes to much the same, the statute leaves at large the date as at which the value of the goods is to be determined. In my view that is the proper construction of this section. Nowhere does the Act expressly state a date as at which the value of the goods is to be assessed. To construe the references to the value of goods as being by implication references only to the up-to-date value would fly in the face of the need for damages to be assessed in a sum which represents the true loss suffered by the plaintiff by reason of the defendant's act."
"67. I have no hesitation in preferring and adopting this view of the present state of the law. The aim of the law, in respect of the wrongful interference with goods, is to provide a just remedy. Despite its proprietary base, this tort does not stand apart and command awards of damages measured by some special and artificial standard of its own. The fundamental object of an award of damages in respect of this tort, as with all wrongs, is to award just compensation for loss suffered. Normally ("prima facie") the measure of damages is the market value of the goods at the time the defendant expropriated them. This is the general rule, because generally this measure represents the amount of the basic loss suffered by the plaintiff owner. He has been dispossessed of his goods by the defendant. Depending on the circumstances some other measure, yielding a higher or lower amount, may be appropriate. The plaintiff may have suffered additional damage consequential on the loss of his goods. Or the goods may have been returned."
Lord Justice Laws:
Sir Anthony Clarke MR: