England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Rolls Building, 7 Rolls Buildings Fetter Lane, London EC4A 1NL
		09/11/2018

Mr. Justice Teare :

1. This is an application by the Claimant, Cargill, for summary judgment on its claim against the Defendant, Uttam, for sums due (some US$61.8 million plus interest) under what are called Advance Payment and Steel Supply Agreements. In effect these are contracts for the sale and purchase of steel whereby Cargill, the Buyer, can be called upon to make advance payments in respect of the price (though it is not obliged to do so). The Seller, Uttam, is then obliged either to sell steel of the requisite value to the Buyer or to repay the sum paid in advance. There are two such contracts relevant to this application, APSA 1 and APSA 2 which are dated 11 February 2015 and 3 July 2015 respectively. There was evidence that the parties had been dealing with each other on similar terms to these two agreements for some years.
2. The operation of the contracts is summarised in Mr. Foxton's skeleton argument at paragraph 14. I shall summarise that summary.
3. Each contract set out the total facility available, US$51.8 million under APSA 1 and US$10 million under APSA 2. Following receipt of a notice of draw down the Buyer had the right, but not the obligation, to pay the amount requested to be drawn down; see clause 8.1. At the maturity date (360 days from payment in the case of APSA 1 and 180 days from payment in the case of APSA 2) the Seller was obliged to repay the amount advanced; see clause 8.5. The Seller could repay in one of three ways. The first was by the sale and delivery of steel, the second was by the sale and delivery, through the Buyer, of steel to an alternative buyer and the third was repayment in cash; see clause 8.4. All payments were to be made "without set-off, counterclaim or condition whatsoever"; see clause 8.6.
4. If the Seller wished to pay by means of a sale of steel the Offer to Purchase had to be made 60 days before the maturity date and, although there could be one or more such offers, they had to be for no less than the amount due for repayment; see clause 5.1. The Offer would be valid for 7 days during which time the Buyer "may either accept … or may decline … in writing"; see clause 5.2.
5. The Seller's obligations under clause 8.5 to pay on the maturity date were not to be affected, terminated or suspended by any failure of the Buyer to make an offer or by any breach of its obligations under clause 5; see clause 5.5. Further, no default by the Buyer of its obligations under the agreement was to suspend, terminate or otherwise extinguish the Seller's payment obligations under clause 8.5; see clause 6.4.
6. The clauses to which reference has been made are set out in an annex to this judgment.
7. In 2015 the Seller submitted six notices of draw down and the Buyer responded to each. The full amount of the financing facility under each APSA was drawn down and paid, US$61.8 million in total. The earliest maturity date was under APSA 2 because the maturity date was 180 days, as opposed to 360 days, after payment. Thus the first maturity date, for repayment of US$10 million, was 5 January 2016. That sum was not repaid. Thereafter, on each succeeding maturity date, no repayment was made. Accordingly the Buyer has made a claim for US$61.8 million as a debt, together with interest. There does not appear to be any dispute that, prima facie, that sum is due pursuant to the terms of the APSA agreements.
8. It is apparent from the Seller's email to the Buyer dated 21 January 2016 that the Seller's ability to repay had been damaged by "huge cash flow pressure" caused by the downturn in the steel industry due to reduced demand and surplus capacity in China. As a result the Seller requested the Buyer to "rollover its amount due of US$ 61.8 million." However, no further APSA was entered into between the parties.
9. The Seller has served a defence to the Buyer's claim. The Buyer nevertheless seeks summary judgment upon its claim because, it says, the Seller's defence has no real prospect of success.
10. CPR 24 provides that summary judgment may only be given where the defendant has no real prospect of defending the claim and there is no other compelling reason for a trial. Prospects of success are considered by reference to the principles set out by Lewison J in Easyair v Opal [2009] EWHC 339 (Ch) at paragraph 15 and approved by the Court of Appeal in AC Ward v Catlin [2009] EWCA Civ 1098 at paragraph 24. They are as follows:

i) The court must consider whether the claimant has a "realistic" as opposed to a "fanciful" prospect of success: Swain v Hillman [2001] 1 All ER 91 ;

ii) A "realistic" claim is one that carries some degree of conviction. This means a claim that is more than merely arguable: ED & F Man Liquid Products v Patel [2003] EWCA Civ 472 at [8]

iii) In reaching its conclusion the court must not conduct a "mini-trial": Swain v Hillman

iv) This does not mean that the court must take at face value and without analysis everything that a claimant says in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents: ED & F Man Liquid Products v Patel at [10]

v) However, in reaching its conclusion the court must take into account not only the evidence actually placed before it on the application for summary judgment, but also the evidence that can reasonably be expected to be available at trial: Royal Brompton Hospital NHS Trust v Hammond (No 5) [2001] EWCA Civ 550;

vi) Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case: Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical Co 100 Ltd [2007] FSR 63;

vii) On the other hand it is not uncommon for an application under Part 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it. The reason is quite simple: if the respondent's case is bad in law, he will in truth have no real prospect of succeeding on his claim or successfully defending the claim against him, as the case may be. Similarly, if the applicant's case is bad in law, the sooner that is determined, the better. If it is possible to show by evidence that although material in the form of documents or oral evidence that would put the documents in another light is not currently before the court, such material is likely to exist and can be expected to be available at trial, it would be wrong to give summary judgment because there would be a real, as opposed to a fanciful, prospect of success. However, it is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction: ICI Chemicals & Polymers Ltd v TTE Training Ltd [2007] EWCA Civ 725.

11. The first defence which the Seller seeks to advance relies upon an alleged breach of contract by the Buyer in November 2015 by failing to accept or decline an offer by the Seller to supply steel to the value of US$6 million. It is said that if the Buyer had accepted the offer the Seller would have made further offers totalling US$61.8 million. As a result, "the prevention principle" debars the Buyer from claiming those sums in circumstances where it has prevented the Seller from discharging its obligation to pay US$61.8 million by selling steel to that value. This defence is set out, in particular, in paragraphs 6-8 and 23-27 of the Defence. It is supported by a witness statement of Mr. Sawhney, the Chief Finance Officer of the Seller, at paragraphs 6-13. Miss Vora, counsel for the Seller, submitted that it was a defence with real prospects of success. She made her submissions with a marked degree of tenacity.
12. There was much debate before me as to whether the offer was too late and for too small a sum, whether the Buyer had agreed to extend the date for a valid offer, whether on the true construction of clause 5.2 the Buyer was obliged to accept or decline the offer or whether it could do nothing, and whether, in circumstances where no steel had been delivered, the offer was irrelevant. However, even if it is assumed that the Seller has a real prospect of establishing that the Buyer breached the contract by failing to accept or decline the offer made on 19 (or 21) November 2015 there are, in my judgment several reasons why the suggested defence has no real prospect of success.
13. First, it is very difficult to understand how an alleged failure to accept or decline an offer to sell US$6 million worth of goods in November 2015 prevented the Seller from offering to supply US$61.8 million worth of goods thereafter. The contractual scheme would not have prevented the Seller from making further offers after November 2015, but the Seller did not make any such further offers. All that is pleaded in this regard at paragraph 25 is:

"It is not only this consignment, but others totalling to the USD 61.8 million under the Agreements that would have been fulfilled by the Defendant who was otherwise undergoing a liquidity crunch to the Claimant's knowledge as the steel industry worldwide slumped."

14. This is a plea of which I can make no sense. The suggestion that the alleged breach prevented the Seller from supplying goods to the value of US$61.8 million carries no conviction.
15. Second, even if there were or would have been offers to sell goods to the value of US$61.8 million the Buyer was not obliged to accept any offer to sell goods. The Buyer was entitled to decline to accept any such offers and require the Seller to repay US$61.8 million in cash.
16. Third, the ASPA agreements provided that no breach by the Buyer of its obligations under clause 5 or under the agreement as a whole would affect the Seller's obligation to repay under clause 8.5; see clauses 5.5, 6.4 and 8.6(a).
17. Miss Vora advanced no answer to this final obstacle to the Seller's defence in her Skeleton Argument but in her oral submissions she relied upon the principle that no person may benefit from his own wrong and suggested that, by reason of that principle, the clauses in the contracts which provided that the sums due remained notwithstanding any breach by the Buyer were not enforceable.
18. The validity of no-set off clauses is established in English law; see Coca-Cola Financial Corporation v Finsat Ltd. [1998] QB 43 at pp.52-53 per Neill LJ. (a case noted in The White Book Vol.1 at para.16.6.2 to which note Mr. Foxton referred in his reply). The purpose of such clauses is to ensure that sums which are otherwise due remain immediately due and payable notwithstanding that there may be other disputes between the parties; see Credit Suisse International v Ramot Plana OOD [2010] EWHC 2759 (Comm) at paragraph 43 per Hamblen J. (the other case noted in the White Book to which Mr. Foxton referred). The clauses in the APSA contracts are rather wider in effect than simple no set off clauses but they remain valid for the reasons given in the above cases.
19. Miss Vora relied upon Rother District Investments Ltd. v Corke [2004] EWHC 14 (Ch), [2004] 2 P&CR 17 at paragraph 13 and Kensland Realty Ltd. v Whale View Investment Ltd. (2001) 4 HKCFAR 381; [2002] HKLRD 87, a case decided in the Court of Final Appeal in Hong Kong. Neither case concerned contractual clauses such as are to be found in the APSA agreements providing that the Seller's liability in debt shall not be affected by any breach of contract by the Buyer. The Hong Kong case concerned, in particular, the "prevention principle", that is, the principle by which a party is prevented from asserting rights or claiming benefits which arise in consequence of his breach. In that case a vendor of property was entitled to give payment instructions (a 'split cheque direction') to the purchaser. It only did so (despite earlier requests) a few minutes before noon on the relevant day, causing the purchaser to be unable to effect payment until a few minutes after 1pm. The vendor then relied on a clause stating that payment by 1pm was of the essence to refuse to accept payment. It was held that he could not do so because he was seeking an advantage that he was only able to gain by reason of his breach of contract. In the present case the Buyer's claim in debt arises independently of (rather than being consequent upon) any alleged breach, by reason of sums totalling US$61.8 million becoming due and payable on the maturity dates. Moreover there is an express term stating that no default by the Buyer shall extinguish the Seller's payment obligations.
20. For the three reasons I have expressed I have concluded that the defence based upon an alleged breach by the Buyer and "the prevention principle" has no real prospect of success.
21. The other defence relied upon was estoppel by convention. This is pleaded at paragraphs 28-31 of the Defence. The pleading refers to a "common assumption" which prompted the Seller to act on an assumed state of facts, and alleges that the Buyer is estopped from denying the truth of that assumption. The pleading does not clearly state what the common assumption was, but the parties are agreed that it is as stated in paragraph 28, namely, that the Buyer "had always refreshed or provided new facilities since 2005". My understanding of this allegation, as explained by Miss Vora in her oral submissions, is that in the years preceding 2015 the APSA had always been renewed by the Buyer so that the Seller was able to repay sums due under an earlier APSA by sums advanced under a later APSA. The arrangement was one by which the Buyer provided the Seller with working capital. The witness statement of Mr. Sawhney said as follows, at paragraph 13:

"Further, the delay in repayment in the aforesaid month led to the APSA for the year 2016, not being approved. This had a torpedo effect on our overall capacity to pay as the previous practice, in case of inability to supply the product, was for part advance received under the next year's agreement, to be utilised to repay the amount due per agreement. However, we were unable to do so due to the unanticipated non-renewal of APSA in the year 2016."

22. It may be the case that the Buyer had in fact renewed the APSA from year to year and that the sums which the Buyer chose to advance (it was not obliged to make any advance) were used by the Seller to repay sums due under earlier APSA agreements. However, it does not follow that the parties assumed that this would always happen. Nothing has been pleaded to support such an assumption. What has been pleaded is that Ayan Dutta of the Buyer acknowledged the convention by an email on 5 January 2016.
23. It is therefore necessary to look at the email exchanges, not for the purpose of conducting a mini-trial, but for the purpose of seeing whether the allegation that the Buyer acknowledged the suggested convention carries any conviction such that there is a real prospect of it being established at trial.
24. By email dated 29 December 2015 the Buyer requested the Seller to remit US$10 million on or before 5 January 2016. On 5 January 2016 the Seller said:

"I had requested you date of your next disbursement. We can't be out of liquidity for more than 2 or three days. We shall remit you as soon as you give visibility of next disbursement."

25. This request is arguably consistent with the suggested common assumption, though it does not mention a common assumption or a common understanding of the way business was done between the parties. If there was to be a "next disbursement" by the Buyer it would have to be pursuant to a new APSA because the facilities under APSA 1 and 2 had been exhausted. The Buyer replied the same day as follows:

"As per contract the subject payment is due today.

With regard to future disbursement as you know we are working on it and cannot give you a concrete date as it is dependent on internal credit and approval processes which is ongoing. We will endeavour to do the best we can as we have in the past.

However not receiving a payment on a due date would trigger a default, something we have not seen in our entire relationship over the years and will have a bearing on all our future deals. Hope you appreciate that and make the payment as per the contract…"

26. This email supports the suggestion that the Buyer was willing to consider a new APSA and indeed was considering it. However, it also shows that if there was a default that would have a bearing on any new deal. The email is, in my judgment, inconsistent with a recognition that the parties were dealing with each other on the basis that the Buyer was bound to agree a new APSA.
27. On 21 January 2016 the Seller provided a "representation for a rollover". This is the document to which I have already referred. It explained the "huge cash flow pressure" on the Seller as a result of the down turn in the steel industry and, having regard to "the above explanation", requested the Buyer to "roll over its amount due of USD 61.80 mio."
28. It is significant that no mention was made of any common assumption or of any agreed course of dealing between the parties whereby the Buyer was assumed to be willing to provide a fresh APSA so that the Seller could pay sums due under an old APSA. This was especially significant in circumstances where the Seller had defaulted on 5 January 2016.
29. In those circumstances - although, as emphasised by Miss Vora, issues concerning estoppels are fact specific and usually unsuited for determination on a summary basis - I do not consider there is any real prospect that the Sellers will establish at trial the suggested common assumption or the suggested acknowledgment by the Buyer of the common assumption on 5 January 2016. The contents of the Seller's own "representation for a rollover" appear to me to be inconsistent with the suggested common assumption, as does the Buyer's email of 5 January 2016. The allegation of a common assumption therefore carries no conviction. In the light of the contemporaneous documents there does not appear to me to be any reasonable prospect that further documents or evidence at trial will assist the Seller's case in this regard.
30. But there is a further difficulty. Estoppels by convention prevent a person from denying a fact which the parties have assumed to be true or from denying that a term of the contract bears a meaning which the parties have assumed it to bear. In the present case it is sought to rely upon an estoppel by convention to oblige the Buyer to enter into a fresh APSA and provide further finance under it so as to prevent the seller from being in breach of its obligations under an earlier APSA. Miss Vora did not refer to any previous case in which an estoppel by convention obliged a party to enter into a fresh agreement. An agreement to agree a fresh APSA is not an enforceable agreement, at any rate in circumstances where important terms such as the amount of the facility (US$10 million or US$51.8 million or some other amount) and the length of credit (360 days or 180 days or some other period) remain to be agreed. A common assumption or convention that such would be agreed cannot be enforceable for the very same reasons. For this reason, also, the defence based upon an estoppel by convention cannot succeed.
31. Thus the Buyer has established that the Seller has no real prospect of establishing a defence to the claim at trial. Miss Vora emphasised that it must also be established that there is no other compelling reason for a trial. She said that at trial further evidence may be available on disclosure and by cross-examination. That must always be true. But, for the reasons I have given, I do not consider that there is any reasonable prospect of further evidence becoming available at trial which will assist the Seller in establishing either of its pleaded defences to the Buyer's claim. That being so there is no compelling reason for a trial. To order a trial would merely serve to delay the date on which the Buyer obtains its inevitable judgment and cause further legal costs to be incurred for no good reason.
32. The court will therefore give the Buyer summary judgment. The amount of interest remains to be decided.
Annex

5. TERMS

"5.1 The Seller shall, at any time on or before the date [forty five (45)] days prior to the last date of the Delivery Period, make one or more written offers to the Buyer (each, an "Offer for Purchase"), in the form attached as Schedule 6, for the sale of Products in such quantity such that the aggregate consideration for the total Products shipped pursuant to such offer(s) is no less than the Aggregate Dues. Each such offer shall specify the terms and conditions, including specifically the price per unit of Product, on which the Buyer may purchase the Product ("Buyer Terms").

5.2 Each Offer for Purchase shall be valid for seven (7) days after receipt thereof by the Buyer, during which time the Buyer may either accept the Buyer Terms by sending a copy of the Offer for Purchase duly executed by the Buyer ("Accepted Offer(s) for Purchase") or may decline the Offer for Purchase in writing.

5.3 Save and except where the Buyer, in its sole discretion, accepts an Offer for Purchase received later than the deadline specified in Section 5.1 above, if the Seller does not provide an Offer for Purchase in accordance with Section 5.1 above, the Seller shall mandatorilty be required to repay the Aggregate Dues in cash in accordance with Section 8.4(c) of this Agreement.

5.4 Prices for the Products shall be computed on an actual net weight basis per metric ton effective, CFR basis, unless pricing on a theoretical weight basis is agreed upon in writing between the Parties.

5.5 For the avoidance of doubt, the Seller's obligations under Section 8.5 will not be affected, terminated or suspended by (i) any failure by the Buyer to make an offer under this Section (whether due to a declaration of bankruptcy by the Buyer or otherwise) or (ii) any breach by the Buyer of its obligations under this Section. After the declaration of bankruptcy by the Buyer or any other breach by the Buyer of its obligations under this Section 5, the Seller may, provided that it has first received a notice in writing from a permitted assignee of the Buyer requiring it to do the same, be entitled to make sales of Product to Alternative Buyers in the first instance in accordance with Section 6 and for such purpose:

(a) the provisions of Section 5.2 will no longer apply (except that the Seller will still be obliged to comply with its obligations under Section 5.1); and

(b) the Seller's obligation under Section 6 to make sales on Alternative Buyer Terms that are no less favourable to the Seller than those offered by the Buyer, shall no longer apply.

provided that any sales to an Alternative Buyer may only be made in the event that the permitted assignee of the Buyer has provided its prior written consent to the commercial terms of such sales.

5.6 The Seller and the Buyer may, by mutual negotiations and agreement, modify and vary the terms of this Section 5."

"6.4 For the avoidance of doubt:

i. no default by the Buyer of its obligations under this Agreement;

ii. no failure by the Seller to procure an Alternative Buyer under this Section 6; or

iii. no failure by such Alternative Buyer to obtain the issuance of a Letter of Credit or make payment of cash to the Buyer against documents, as applicable;; or

iv. any other action or inaction by the Buyer, any Alternative Buyer or a third person,

shall suspend, terminate or otherwise extinguish the Seller's payment obligations under Section 8.5."

8. ADVANCE PAYMENTS

"8.1 Subject to Section 10.1 and at its sole discretion, the Buyer has the right but not the obligation, to pay the Seller an Advance Payment Amount during the Availability Period, by disbursing to the Seller the Disbursement Amount within seven (7) Business Days from the receipt of a Notice of Drawing and the Promissory Note, provided that the aggregate of all Advance Payments drawn down pursuant to this Agreement shall not exceed the Advance Payment Commitment.

8.2 A Notice of Drawing by the Seller is irrevocable and will not be regarded as duly completed unless the proposed Advance Payment Drawdown Date is a Business Day during the Availability, as the case may be. The Seller shall not issue a Notice of Drawing after the Availability Period.

8.3 The Buyer shall notify the Seller promptly after making an Advance Payment under Setion 8.1.

8.4 The Seller hereby irrevocably and unconditionally agrees that it will, no later than each Maturity Date, pay those amounts identified in Section 8.5, by means of:

(a) the sale of Products to the Buyer, pursuant to the terms hereof, and a delivery or a shipment of Products shall only constitute a "sale" for the purpose of this sub-paragraph (a) if following such delivery or sale, the Buyer notifies the Seller within seven (7) Business Days of the Buyer's receipt of all original documentation of the compliance of the documentation with the Confirmation of Purchase, and for such purpose the "sale" shall be deemed to have taken place on the date of such notification.

(b) the sale of Products to the Buyer for onward sale to the Alternative Buyer, pursuant to the terms hereof, and a delivery or a shipment of Products shall only constitute a "sale" for the purpose of this sub-paragraph (b) if following such delivery or sale the relevant purchase proceeds are received in full into the Collection Account by the Buyer as payment under the Letter of Credit from the negotiating or confirming bank or under the CAD terms, and for such purpose the "sale" shall be deemed to have taken place on the date of such receipt and/or

(c) making a cash payment to the Collection Account.

8.5 The Seller shall pay to the Buyer on each Maturity Date, an amount equal to:

(a) any unpaid amount of the Advance Payment Amount;

(b) any due but unpaid Fees; and

(c) any other sums due under the terms of this Agreement.

provided that the Seller may only satisfy its obligations under this Section 8.5 in the manner set out in Section 8.4. The Parties agree that the Seller's payments shall be applied toward reducing the Total Advance Payment Amount in the chronological order of the Maturity Dates of the Advance Payments.

8.6 (a) All payments to be made by or on behalf of the Seller to the Buyer pursuant to this Agreement or the Master Uttam Security Assignment shall be made:

i. without set-off, counterclaim or condition whatsoever; and

ii. free and clear of and without deduction for or on account of any present or future Taxes, unless the Seller is required by law or regulation to make any such payment subject to any Taxes."